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Research reveals the cost of essential goods rising much faster than luxuries

The bureau has pulled apart the inflation figures over the period between 2012 and 2019, looking specifically at price increases for discretionary and non-discretionary goods.

Across the seven years, the prices for all goods increased by 14 per cent. But for essentials, prices rose by 14.8 per cent.

The costs of non-essentials rose by a more modest 12.9 per cent but this was inflated by federal governments’ increases in tobacco excise, which have more than doubled the retail price of cigarettes and cigars.

If tobacco is excluded, the costs of non-essential goods increased by just 6.4 per cent.

The bureau found the costs for many non-essential goods and services, like household appliances and furniture, had actually fallen over recent years.

But it had been a different story for many necessities.

“Price increases in housing, health and education costs were the main contributors to non-discretionary inflation,” it found.

Over the same period, the wage price index rose by 16.2 per cent, leaving most people only about 2 per cent ahead of inflation over seven years.

Another issue possibly driving the difference is the value put on essential and discretionary goods by consumers.

The bureau noted demand for essentials were less responsive to price changes or increases in household income while consumers had more options when it came to discretionary goods.

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It found spending on goods or services that could be considered ‘optional’ purchases, such as take-away meals, alcohol and holidays “may be more responsive to changes in household wealth or relative prices”.

During the coronavirus pandemic, the long-term trend of higher priced essentials eased. Inflation on non-discretionary goods and services dropped by 3.5 per cent in the June quarter due largely to childcare being made free.

Prices of non-essentials rose by 0.3 per cent over the same period.

The data came after Westpac’s closely watched measure of consumer sentiment showed confidence this month soaring to its highest level since late 2013.

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It was driven by the reopening of the Victorian economy – where confidence grew by 9 per cent compared to a drop of 5.5 per cent in NSW – and continuing positive signs about Australia’s management of the coronavirus pandemic. Confidence has soared by 35 per cent since August.

Westpac chief economist Bill Evans said there were some positive signs for retailers, with the survey showing consumer Christmas spending plans in line with long term averages.

“Given the high degree of uncertainty this Christmas, and the headwinds from the high unemployment rate it is a very encouraging sign that Australians are planning for a ‘normal’
Christmas,” he said.

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