Increase driven by rising mortgage and insurance costs
All Australian household types experienced an increase in living costs during the June 2024 quarter, according to the latest data from the Australian Bureau of Statistics (ABS).
Michelle Marquardt (pictured left), ABS head of prices statistics, noted that the increases ranged from 1.2% to 1.4%, depending on the spending patterns of different household types. This compares with a 1% rise in the Consumer Price Index (CPI) for the same period.
“This is the first time since December 2010 that increases in living costs for all household types were higher than the increase in the CPI,” Marquardt said.
The main contributors to the rising living costs were insurance and financial services, including mortgage interest charges, as well as food and non-alcoholic beverages. Housing also played a role in the increased living costs for all household types except self-funded retirees.
Higher premiums for motor vehicle, house, and home contents insurance, along with rising fruit and vegetable prices due to unfavourable growing conditions, affected all household types.
Households receiving government transfers, whose main source of income is government payments, saw the largest cost increases.
“Other government transfer recipient households were most impacted by higher rental prices,” Marquardt said.
A key difference between the Living Cost Indexes and the CPI is that the Living Cost Indexes include mortgage interest charges rather than the cost of building new dwellings. Employee households were particularly affected by rising mortgage interest charges, which represent a larger portion of their spending compared to other household types.
“Mortgage interest charges rose 2.6% in the June 2024 quarter, driven by the continued rollover of some expired fixed-rate mortgages to higher variable-rate mortgages,” Marquardt said.
The rise in living costs could force retirees and other investors to seek higher returns from fixed income assets outside of term deposits, according to Tim Keith (pictured right), managing director of private credit fund manager Capspace.
He advised Australians nearing retirement to consider shifting more of their investment portfolios to fixed income assets, such as private credit, to improve real returns after inflation.
“Private credit investments, which can deliver yields close to 10% per annum, may be particularly attractive compared to bank term deposits or online savings accounts, which in June generally offered less than 5% per annum,” Keith said.
“More defensive assets such as fixed income, and private credit particularly, may deliver more attractive yields than residential property, cash or fully franked shares. That’s a key detail because it is income-yielding assets that will support Australians in everyday living and in retirement.”
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