Cost of essential goods and services rising faster than price of non-essential items, ABS finds

By Shannon Jenkins

Thursday November 12, 2020


The Australian Bureau of Statistics is seeking feedback on the usefulness of new analysis on how the cost of living affects Australian households.

Conducted as part of the ABS graduate program, the research released on Wednesday used Consumer Price Index (CPI) data to explore how households have experienced inflation in recent years, and whether prices are increasing at the same rate for essential goods and services compared to those that are non-essential.

The ABS categorised 87 “CPI components”, i.e., goods and services, as either non-discretionary (essential purchases, such as vegetables, rent, and childcare), or discretionary (optional purchases, such as take away meals, alcohol and holidays).

It found the costs of basic items have risen faster than that of less essential items.

“This analysis shows how prices for goods and services that could be considered ‘essential’ were increasing more rapidly than those for more ‘optional’ goods and services,” the ABS said.

“This provides valuable insights into how Australian households have experienced inflation in recent times.”

The research found that, between 2012 and 2019, cumulative non-discretionary inflation was 14.8%, compared with 12.9% for discretionary inflation. Excluding tobacco — which more than doubled in price over the period — discretionary inflation was just 6.4%.

Non-discretionary inflation exceeded overall CPI inflation between 2011 and the beginning of 2020, the ABS found, with the main contributors being price increases in housing, health and education costs. It briefly fell earlier this year, due to free child care being temporarily introduced by the government during the COVID-19 pandemic, as well as volatility in automotive fuel prices.

Over the course of the decade, discretionary inflation rose more slowly than overall CPI inflation, due to price falls for items such as clothing, furniture, household appliances and motor vehicles. Price increases for non-essential food has also been “subdued in recent years”, the ABS noted.

Tobacco was the biggest contributor to discretionary inflation, with prices more than doubling since 2011. When tobacco is removed from the analysis, cumulative discretionary inflation since 2011-12 reduces from 16% to 8%. The ABS has argued that the latter figure is more representative of the majority of the Australian population, as fewer than 15% of Australians are daily smokers.

Excluding tobacco, the rate of non-discretionary inflation has therefore been more than double that of discretionary inflation, the ABS said.

The bureau has called for the public to have a say on whether the new analysis on discretionary and non-discretionary inflation is useful, and the potential for the ABS to continue to produce these measures in the future.

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