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Inflation increased 5.4 per cent over the past 12 months, and over the past quarter it has risen 1.2 per cent.
This is the sort of sentence that you’re probably used to seeing every three months when the latest consumer price index data is announced and with the cost of living becoming a bigger issue by the day, these Australian Bureau of Statistics figures carry a lot of significance.
Trying to make sense of the rise of inflation?Credit: Stephen Kiprillis
But it’s not as though these figures are conjured up out of thin air by the ABS. A huge amount of data is collected from around the country on what a typical household would be spending money on as well as how much of their overall budget would be put toward certain items.
There’s a lot happening under the surface of this 5.4 per cent figure, and to make of sense of it we just need to look into the inflation iceberg to understand what’s happening under the surface.
Okay, so what’s under this inflation iceberg?
At the most granular level, there is data on 87 categories of spending (which the ABS refers to as expenditure classes) that are bundled together to form the overall inflation figure. These include everything from bread, beer and books to pets, pharmaceuticals and pork.
You can check out how prices have increased (or in some cases decreased) for all 87 expenditure classes in the graph below. You can also see which ones have recorded price increases outpacing overall inflation (the yellow bar) and which ones have increased more than wages (the green bar).
Over the past 10 years, the biggest price increase has been:
- Tobacco (206.8 per cent more expensive, which is three times more expensive than it was back in September 2013);
- Beef and veal prices (73.6 per cent);
- Medical and hospital services (60.8 per cent);
- Gas (57.7 per cent);
- New housing purchases (54.8 per cent)
But, if you want to look on the bright side – TVs, phones, shoes and clothes have fallen in price over the past 10 years.
Over the past year, the biggest increases in price have been for cheese (16 per cent), gas (15.4 per cent), insurance (14.7 per cent), electricity (14.5 per cent) and postal services (14.2 per cent).
However, keep in mind that one year of data can be a bit noisier, since sometimes there is a rapid price increase one year that is followed up with a correction the following year, which is likely what we are seeing when it comes to vegetables, which dropped in price by about 10 per cent over the past 12 months.
Behind the numbers
These expenditure classes are the deepest that it is possible to drill down into the publicly available data, but within each class, there are many items that the ABS tracks.
Take ‘Milk’, for example. Its latest figure takes in the prices and sales data of many different milk products available in supermarkets, as well as milk substitutes like almond milk and soy milk.
And it is not only what people are spending money on that is taken into account, but how much of the overall household budget that goes toward each expenditure class. Each of these 87 classes contribute a small amount to the overall inflation figure, with some being weighted more heavily than others.
For example, housing costs make up a large contribution to the overall CPI, especially with an increasing proportion of household incomes going towards rent or mortgage repayments.
The expenditure classes have remained the same since 2005, but what goes into them is constantly changing.
For example, DVD rentals used to be counted but they have now been replaced with streaming service subscriptions and phone cards were phased out of ‘Telecommunication equipment and services’, while mobile phone plans and smartwatches were added in.
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