THE BIG PICTURE: A cost-of-living boost that should have us smiling

There has been plenty of discussion of the “cost of living” in recent times to justify subdued levels of consumer confidence and general mood of conservatism. Much of the focus has been on the rising cost of utilities – electricity, gas and water rates. But council rates, health costs, education, petrol prices and housing rents are also frequently cited when discussing the rising cost of living.

When most people talk about the cost of living, they point to the increasing size of the bills they receive or the prices they pay at retail outlets. When economists discuss the cost of living, generally the focus is on the Consumer Price Index.

But these concepts really explain nothing in isolation. A far better concept is purchasing power, where living costs are compared with wages. And it may surprise you that the lot of Australians is still improving in many ways.

For instance, home affordability is now at the best levels in almost a decade (since June quarter 2003). And mortgage affordability is the best in nine years – for someone on the average wage it now takes 1.49 weeks to pay the monthly mortgage – the best since December 2003.

Petrol is 12% more affordable than five years ago and little-changed over the past decade. But in Sydney this week petrol was at $1.20 a litre with discount vouchers – the most affordable in 25 years of records. Car affordability is also the best since 1976. As the old adage goes: don’t worry, be happy.

The week ahead

In the coming week, economists start piecing together the ‘economic growth puzzle’. In other words, there are numerous components that determine how fast the economy grew in the September quarter, and in the week ahead some of the indicators will be issued. In the US, the focus again is on economic growth, with the second (preliminary) estimate due for the September quarter.

In Australia the week kicks off on Tuesday with a new publication by the Australian Bureau of Statistics covering the trade sector. The “Balance of Payments – Goods and Services” publication provides early estimates of “net exports” (exports less imports) contribution to economic growth in the September quarter.

On Wednesday yet another piece of the ‘economic growth puzzle’ is obtained, this time data on dwelling investment. The ABS issues ‘Construction Work Done’, and in addition to estimates of residential, commercial and engineering work done in the September quarter, there are also forward-looking estimates on work yet to be done.

On Thursday the ABS issues business investment data. Again, this is another piece of the ‘economic growth puzzle’ showing spending on equipment and buildings in the September quarter. In addition, the publication contains estimates of future spending. In the last issue, the upgrade to spending estimates for 2012/13 was the weakest in 19 years. If the new estimate is similarly weak, the chances of a December rate cut will improve significantly. CommSec expects that investment in the September quarter grew by 3% after a 3.4% lift in the June quarter.

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