Last updated: April 15th, 2024
Most Australians are having to spend more on the basics and delay big purchases due to inflation and dwindling savings. Money worries have become a leading cause of mortgage stress and mental health problems.
Insights into how Australians spend their money shared by the ABS reveal that in the 12 months to February 2024, we:
- Spent 3.6% more than a year ago across all household purchases,
- Increased spending on essentials by 6.9% (particularly transport, health and food), and
- Reduced discretionary spending by 0.2% (less new furniture and fun outings).
Recent Living Cost Indexes data released in February 2024 found household costs rose the highest for working families paying more interest on their mortgages — 6.9% in the year to December 2023.
| Key Takeaways: |
|---|
| Inflation and interest rate rises continue to reduce Australians’ disposable income and ability to save. |
| Government measures to be enacted in July 2024 could help bring down cost of living pressures. |
| Wage growth is now exceeding inflation, but its unclear if that’s enough to put ‘real’ incomes into positive territory. |
While our high standard of living makes Australia a desirable place to live and migrate to, day-to-day costs can make it hard to prosper and get ahead.
Is there relief on the horizon?
Above: Employee households 2023 saw the largest annual rise in living costs of all household types.
Cost Of Living Is Climbing Faster Than Inflation.
Our current annual rate of inflation (as of December 2023) is 4.1%, with the largest increases from 2022 prices being seen in housing, electricity, insurance and travel.
While monthly indicator data from January and February 2024 signals slowing inflation, at 3.4% it’s still above the Reserve Bank of Australia (RBA) target of 2-3%.
Important!
When costs rise too quickly, it’s bad news — and typically triggers action from the RBA in the form of cash rate rises that influence interest rates. This cools demand by reducing borrowing and spending.
Paying off the mortgage became significantly more costly in 2023, thanks to Australia’s well-documented and unprecedented run of interest rate rises.
Above: Many Australians were forced to divert 30% or more of their disposable income to servicing their loan.
Higher rates and the cohort of borrowers rolling off low fixed rates to much higher variable rates, meant repayments skyrocketed.
ABS’ Living Cost Indexes (LCI) data shows Mortgage interest charges rose:
- 5.4% in the December 2023 quarter.
- 40.3% across the entire 2023 year.
Expert Tip.
The ABS’ LCI data differs from CPI because it includes mortgage interest charges rather than the cost of building new dwellings.
Rents have also been a major contributor, rising 7.6% annually from Feb 2023 to Feb 2024, based on the ABS’ latest monthly CPI indicator figures — higher than the December ’23 quarter CPI rise of 7.3%.
Important!
Rents would be even higher if not for a 15% increase in Commonwealth Rent Assistance (CRA) subsidies.
With fewer properties available, asking rents in capital cities jumped 14.2% in the year to January 2024, according to property data group SQM Research.
Nationally, the median weekly asking rent is $611.38 a week — and over $800 for a house in a capital city.
Analysis by the ABC shows the ratio of earnings to mortgage size has more than doubled in the last 30 years — meaning the average mortgage is now eight times the yearly wage (compared to 3x in 1990).
Are Australians Paying More For Everyday Items?
When it comes to CPI inflation, other major costs include:
- Electricity and gas, despite rebates offered by State Governments, rose 6.9% in the 12 months to December 2023 (down from 14.5% in Sept).
- Alcohol and tobacco, which saw a 6.6% increase in the Dec ’23 quarter.
- New dwelling price inflation remained steady, but still high at 5.1% – although it’s eased considerably from a peak of 20.7% in 2022.
- Insurance premiums, which rose 16.2% annually—the strongest rise since March 2001.
(Related: Australian Inflation Rate: Will It Drop In 2024)?
Food prices have been lowering, but stocking up on groceries was still 4.5% more expensive compared to 12 months ago, except for fruit and veggies, which have been falling:
- 6.4% in the September quarter
- -0.2% in the December quarter, and
- -0.5% per February 2024 monthly indicator data.
Inflation in the price of meat and seafood also dropped (-2.0%), according to February’s figures.
Above: At least the fruit and veg became cheaper 🙂
But Wait, We’re Getting Wealthier?
While our collective household net worth has increased, around 70% of that wealth is tied to property ownership, and therefore home price values.
Above: 70% of Australian household wealth is tied to household values.
Supply shortages that are driving up home values saw household ‘non-financial asset’ wealth grow by 2.0% in the December quarter of 2023, based on ABS data.
- Financial assets of households, like superannuation, equities, and cash deposits increased by 3.3% —largely due to strong share market performance.
- Lower-income earners, for whom home ownership and investing are less realistic, are losing more and more ground as inflation and higher rates persist.
It seems to be a case of the rich getting richer while others are left behind.
Recent data from the US Federal Reserve reveals American households have become wealthier since the pandemic, but the top 0.1% saw the biggest increase.
Did You Know?
The US’ mega rich now account for a near-record 13.6% of total household wealth. The lower half of households in the US hold just 2.5% of the country’s total household wealth.
What’s The Government Doing To Bring Down Living Costs?
Whether it was a cynical move, pre-meditated, or a genuine response to the cost of living pressures, Labor leader Anthony Albanese called a snap caucus meeting in early 2024 that resulted in changes to proposed stage 3 tax cuts.
Proposed changes will mean that from July 1, 2024:
- More people earning below $120,000 will get a tax cut — around $800 higher than they would have under the original plan.
- People earning $160,000 or more will get a smaller tax cut than originally proposed (e.g., over $4k less for people on a $200k-plus salary).
Treasury estimates will have a negligible impact on inflation.
(Related: Interest Rate Forecast: Will The Rates Drop In 2024?)
In March 2024, Treasurer Jim Chalmers continued to make noise about reducing the cost of living pressures.
Chalmers also outlined a new financial sector framework that includes the abolition of tariffs from July 1 this year, which should make some household items — like white goods, clothing and sanitary products — cheaper.
That’s assuming businesses stop passing on their tariff compliance costs to consumers.
How Do We Measure The Cost Of Living In Australia?
Consumer Price Index (CPI) is the Australian government’s go-to tool for estimating living expenses.
Measuring long-term, high-level inflation (known as “headline inflation”), it monitors price movements in a “basket” of everyday goods and services from 11 categories.
Here they are, ranked from highest to lowest.
| Housing | 22.24% |
| Food and non-alcoholic beverages | 17.18% |
| Transport | 10.99% |
| Recreation and culture | 10.84% |
| Furnishings, household equipment & services | 8.94% |
| Alcohol and tobacco | 7.87% |
| Health | 6.25% |
| Insurance and financial services | 5.56% |
| Education | 4.43% |
| Clothing and footwear | 3.37% |
| Communication | 2.31% |
Source: Australian Bureau Of Statistics, Annual weight update of the CPI and Living Cost Indexes.
Eagle-eyed readers will notice that housing is over-represented in the above CPI index, and will wonder whether Australia’s skyrocketing housing costs are artificially driving up the official reported CPI level.
The correct answer is – yes and no:
- Mortgage repayments are not included in the CPI, and neither is the cost of buying established dwellings.
- Rents, the cost of new houses (excluding land value) and the cost of major alteration are included.
When Will Australians’ Living Wage Increase?
Of course, whether you feel life is affordable also comes back to how much you’re earning. ABS data shows that:
- Australians earn, on average, between $1,400 – $1,900 a week (~$72,000 – $98,000 annually) — variables include whether they work full-time or part-time, their sector, gender and industry.
- The median income for employed Australians is $56,547 annually.
Expert Tip.
The median is the middle value in a range and offers more useful insight into wages than an average metric, as it’s less affected by outliers and skewed distributions.
The most recent WPI rise (Q4 2023) was 0.9% for the quarter and 4.2% for the year — just barely beating inflation, for the first time in almost three years.
Plus, there’s evidence employers believe wages will continue to outpace inflation to keep good staff.
However, analysis by the Australian Financial Review in February found that real gross household disposable income per capita fell sharply last year (-6.1%) — more than all other measured OECD countries.
Deloitte Access Economics partner Stephen Smith explained that real gross household disposable income per capita is one of the best measures of household moods:
Wages that aren’t keeping pace with living costs limits people’s ability to save, making the transition from renting to home ownership increasingly hard.
- Recent modelling shows Australians would have needed a pay rise between $50,00-$90,000 in 2023 to afford a median-priced house in an Australian capital city, in light of property price increases and interest rates.
- In fact, Australians on a median household income would need 10-12 years to save a 20% deposit for a home, as revealed by the ANZ CoreLogic Housing Affordability Report.
The report found servicing home loans was eating up more people’s income — at 46.2% in September 2023, compared to 29% in March 2020.
Exacerbating this issue is that:
- House price values continue to rise in 2024. But the rate of growth has been slower than in 2023.
- Population growth through immigration continues to put pressure on demand and prices.
- Lack of high density housing reduces affordability and pushes people to outer suburbs, increasing their transport costs.
How Many Aussies Are Struggling With Living Expenses?
Research from The Melbourne Institute found the proportion of households living on incomes less than 60% of Australia’s median income almost doubled (from 4 to 7.4%) between 2016 and 2021.
The Institute said:
- More Australians were now at a greater risk of being unable to recover quickly from an unexpected earnings shock (e.g., losing your job or a big expense like having a child), and
- More than 50% of Aussies reported challenges in making ends meet.
Obviously, people on the lower end of the salary range are doing it toughest. Australia’s minimum wage is $882.80 per week (~$45,900 annually).
The Australian Council of Social Service (ACOSS) expressed concern cash rate rises in late 2023 to tackle inflation would come at the expense of Australian jobs and hurt people on low incomes the most.
How Can Australians Ease Cost Of Living Pressures?
Avoiding spiralling debts and making your money work harder starts with having your fundamentals in order. That includes:
| What You Can Do | Why It Matters |
|---|---|
| Developing a budget that clarifies your income and expenses, including a clear picture of your current spending habits and commitments. | Without this, you’ll find it harder to stay on top of larger, less frequent bills (e.g., rego) or see where the biggest cost savings can be. |
| Setting up a foolproof savings plan by automatically diverting an amount from your pay into a different account. | Having a savings buffer helps you avoid using more expensive credit products (like payday loans) down the line to fund unexpected costs. |
| Sustainably growing your wealth by considering low-risk, long-term investments, which could include a mix of fixed interest (e.g., term deposits, bonds) and growth assets (e.g., stocks). | Money kept in the bank rarely earns interest above and beyond inflation growth. Investing provides an opportunity to improve returns on your hard-earned income. |
But you also need to think about ways to increase income and reduce expenses. One oft-overlooked strategy that is a clear winner — asking!
You should be:
- Making a case for a raise in your job if you haven’t had one in a while, seek out promotions or consider a move to a higher-paying role with another employer. A number of Australians are also taking up side gigs for extra cash, or making money through the sharing economy (e.g., renting out a spare room, your car, or your parking spot).
- Asking your current providers for a discount. For instance, if you’re driving less you could ask your car insurer for a discount. If you see a better deal advertised, hit up your current provider and see if they value your loyalty enough to stop you from leaving. You should also check your State Government’s website for available rebates and subsidies.
- Contacting your lender about a better interest rate. Don’t ignore what is typically your biggest expense. Ring or email your bank at least once a year (or more) and ask if they can do better. It helps to refer to more competitive mortgage interest charges you’ve seen on the market. If you don’t get a discount, explore refinancing with a different lender.
Important!
If you’re in strife, you can talk to a financial counsellor for free by contacting the National Debt Helpline (1800 007 007) open from 9.30 am to 4.30 pm, Monday to Friday.
Frequently Asked Questions About Cost Of Living In Australia.
Here’s what Aussies, international students, businesspeople and investors want to know about living costs.
What is the cost of living for students in Australia?
Your weekly living costs will depend on whether you live in a major or regional city, live in on-campus accommodation, a homestay family or rental accommodation.
As a rough guide:
- Shared rentals: $150 – $350 per week.
- On-campus accommodation: $130 – $350 per week.
- Private rental (studio apartment) in a capital city: $400-$600 per week.
- Private rental (studio apartment) in a regional city: $200-450 per week.
Apart from rent and tuition fees, your lifestyle can drastically impact your cost of living in Australia. Limit your spending on restaurant meals and takeaway lunches to save money.
Important!
The notorious Australian avocado toast is (allegedly) the #1 driver of all financial ruin in Australia.
How does the cost of living compare across major cities?
Let me confirm what Sydneysiders already know: your city is the most expensive in the country.
Did You Know?
Sydney is also the 10th most expensive city in the world, behind Paris, New York, Zurich, Tel Aviv and a few others. Singapore is the world’s most expensive city.
But Melbourne, Darwin and Perth trail closely behind. Hobart and Adelaide are still the cheapest cities to live in.
Final Thoughts On Australia’s Rising Living Costs.
While the cost of living in Australia remains high, the longer-term forecast is for interest rates to decrease by late 2024 as inflation starts moving in the right direction again and the Australian dollar increases in value.
Property prices and rents are also expected to ease slightly in 2024, which may provide some relief for households and help some Australians buy or invest in property.
Jody
Nelson says:
I attempted to use the “hack” to dodge conversion fees, but sadly after converting AUD to USD on a Wise account, there doesn’t seem to be a way to deposit that money into eToro; i.e. eToro recently disabled Wire transfers and Wise doesn’t support SWIFT transfers for sending USD to a bank in the US?
John Keys says:
CMC Invest are an abysmal in turning around new accounts.
Over 1 month to setup up an account with an investment trust, and still waiting. I was promised 5 business days.
Reg Watson says:
Given that China’s economy is going down the toilet how the heck do we expect an appreciation of the Aussie in 2024 ? We are tied to China.