Fuel prices put the pressure on

While

Western Australia has traditionally been one of the less expensive Australian states in which to live, recent rises in key indicators point to a closing of the cost-of-living gap.

At the same time, industry in WA has absorbed a considerable amount of price rises across a range of key inputs.

The cost of living in WA relative to other states has risen during the last year, with Perth’s consumer price index (CPI) up 3.8 per cent in the 12 months to June. This figure was the highest of all capital cities.

The CPI measures the rise in the cost of a basket of goods weighted according to their importance in the average household budget.

The main contributors to price growth in Perth during the March quarter were price increases related to housing, food, health, alcohol, tobacco and education, according to Australian Bureau of Statistics figures.

In that period those increases were partially offset by price decreases in: transportation (in particular, for motor vehicles and fuel); household furnishings, supplies and services; and clothing and footwear.

However, these offsetting effects disappeared to some extent due to the higher fuel prices later in the year.

Perth’s CPI rose 1.3 per cent in the June quarter while the average across the nation’s eight capitals was just 0.6 per cent.

Housing costs in WA rose 2.1 per cent during the June quarter and 8.5 per cent over the year to June, against an average of 3.9 per cent across Australia.

But fuel costs made the biggest impact on the overall increase in consumer prices, increasing by over 7 per cent in the quarter and by 10.5 per cent for the year.

Most recently, the higher fuel price has fed through to everyday groceries, farming groups have warned, with the price of dairy foods up between 5 per cent and 8 per cent this month.

And while Perth’s cost of living might recently have risen compared with other Australian capitals, its position among the world’s largest cities has not changed much.

In the 2004 Mercer survey Perth ranked 94th. This year its ranking was just one place higher. The survey measures expenses such as housing, food, clothing, transportation and entertainment.

The most recent electricity price data comparing all the Australian states shows that WA is one of the most expensive when it comes to power bills.

In 2002-03 the real residential electricity price in cents per kilowatt hour was 13.32 cents, while the cost to small business was the second highest in the nation at 16.17 cents per KWh.

Other business costs have risen as well, reflecting higher commodity costs.

But while producers have absorbed some of these costs, the housing and construction sector has had good reason to pass on higher costs.

The housing boom has led to price increases in the general construction sector of 1.1 per cent in the June quarter and 6.5 per cent over the year to June in the nation. While still high, this rise was the lowest it has been for several years.

Many other component rises in Perth’s CPI have been felt across the country and the Reserve Bank is keeping a close eye on inflation, with its view of keeping the national CPI figure between 2 per cent and 3 per cent on an annual basis.

The RBA’s most recent forecast for underlying inflation in the economy is that it will reach a peak of 3 per cent in the second half of 2006.