Inflation Destroys Income Growth

EDITORIAL THURSDAY 24.07.08. It’s not really so surprising that the official inflation figures have come in as high as they have. Although reported in some outlets as being “higher than expected’, ordinary everyday Australians already know that prices are out of control. The release of the inflation figures has coincided with a report from the National Centre For Social And Economic Modeling which has shown that while income growth over the last five years was very strong, most of it was eaten up by increasing prices, especially in the cost of housing. Put the two reports together and it’s easy to see why so many people are finding it hard to see the prosperity we have been told is all around us.

The NATSEM report, compiled for the AMP, shows that it has been middle income families who have been worst hit over the last five years, with some of them actually going backwards after increased costs are balanced against increased incomes. It is those same families who are now struggling with an inflation rate which has come in at 4.5% for the financial year. The figure for the June quarter alone is 1.5%, so it’s easy to see that it’s getting worse, not better.

Everybody can see the impact of high petrol prices, but here are the figures: In the past year petrol has increased in price by 18.4%, milk 12.1%, bread 6.8%, cheese 14.2%. On the housing front, bank charges have increased and rents have continued to climb with Sydney house rentals increasing by 15%.

The final quarter of the 2007-08 financial year had the steepest increases, with petrol rising 8.7% in just three months while at the same time Sydney house rentals rose 8%. The only good news is that it would appear that the Reserve Bank is confident that a slowdown is beginning to occur and that further interest rate increases will not be necessary.

It is no surprise that people are finding it tough. Most of us already knew that.