Housing cost inflation is hurting

Rising prices are still at the forefront of people’s minds in Australia, with the impact of inflation still being felt around the kitchen table or at the petrol station.

The national inflation rate reached 5.4 per cent in the September 2023 quarter, according to the latest Consumer Price Index (CPI) data from the Australian Bureau of Statistics (ABS).

This is certainly lower than the peak in December 2022 when the inflation hit 7.8 per cent, but the cumulative impact is taking its toll on many families as prices continue to rise faster than wages.

In Western Australia, prices have increased by 5.8 per cent over the past year, mainly driven by non-discretionary spending on food, fuel, housing, and rent.

There have been big price hikes for some food items.

For instance, the price of cheese went up by 16.3 per cent, bread by 12.3 per cent, dairy products by 10.4 per cent, and fish and seafood by 7.7 per cent during the past year.

But it’s not all bad news when it comes to grocery costs.

The price of vegetables fell by an average of 5.7 per cent due to an unusually warm winter, while lamb prices were down 5.2 per cent, and beef and veal products 3.2 per cent cheaper.

And parents of young children enjoyed some relief from childcare expenditures, with childcare costs falling 8.6 per cent due to a more generous childcare subsidy from July 2023.

However, fuel prices have surged by 8.7 per cent in the September quarter due to global events, supply issues, and a weaker Australian dollar.

A litre of unleaded petrol now costs an average of $1.97, up 13.5 cents in the past quarter.

But housing costs are responsible for the lion’s share of cost-of-living pressures because of the large share of spending that many families devote either to rent or mortgage repayments.

Rental prices climbed by 9 per cent and overall costs of housing by 10.7 per cent in September 2023 compared to a year earlier. 

Working households are facing by far the greatest cost-of-living pressures by virtue of their heavier commitments to service housing costs compared to other types of families.

These persistent cost-of-living pressures, coupled with increases in the Reserve Bank of Australia’s cash rate, are starting to erode the financial resilience that many families have fought to protect since the onset of the pandemic.

According to the RBA’s Financial Stability Review in October 2023, about 13 per cent of homeowners with variable rate mortgages faced higher expenses and mortgage costs than could be covered by their regular incomes.

The value of fixed-rate personal loans has risen by 12.1 per cent to $2.5 billion during the past 12 months.

Personal loan arrears at 30 days or more have also risen, by 12 per cent over the past quarter, according to data from the Equifax credit bureau.

And the Bankwest Curtin Economics Centre’s 2023 housing affordability report found that the mortgage delinquency rate has more than tripled for new homeowners who took out loans in 2022 compared to those with earlier loan vintages.

Taken together with the recent cautious signals from RBA governor Michele Bullock, the evidence of financial stress suggests a rough ride for a growing share of households over the upcoming vacation period.

• Dr Lili Loan Vu is a Research Fellow at the Bankwest Curtin Economics Centre