Living costs for working households improve but remain historically high: Global X
Global X Senior Investment Strategist Marc Jocum (pictured) says the latest indexes of living costs for Australian households highlight significant financial strain, especially for working households, which have endured the steepest cost-of-living rise in 25 years.
The Living Cost Indexes (LCIs) recorded movements between -0.1% and 0.4% in the December 2024 quarter. Over the twelve months to the December 2024 quarter, the LCIs rose between 2.5% and 4.0%, with the Employee LCI leading at 4%, followed by the Pensioner and beneficiary LCI (PBLCI) at 2.8% and the Age pensioner LCT the lowest at 2.5%, according to data released today by the Australian Bureau of Statistics (ABS).
Alcohol and tobacco, recreation and culture and Insurance and financial services were the main positive contributors across all LCIs. These were offset by falls in electricity and fuel prices.
“Today’s data confirm a continued slowdown in rising living costs, but pressures still remain. Employee households have endured the steepest cost-of-living increase in 25 years, and while conditions are gradually improving, challenges persist,” Jocum said.
“Like a leaking tap, even a trickle adds up over time, and households are still feeling a financial squeeze.
“Employees, who make up over 16 million Australians and earn their principal source of income from wages and salaries, experienced a 0.4% increase quarter-on-quarter and a 4% rise year-on-year. This reflects 18 consecutive quarters of rising costs, highlighting significant financial strain, though that rise is down from the 9.6% peak in June 2023.
“Pensioners had some relief with a quarterly drop in their cost index due to energy bill relief and commonwealth rent assistance.”
Unlike the CPI, the LCIs include mortgage interest costs, which remain a major financial strain on households. “With mortgage interest charges still elevated, many borrowers are looking to the RBA for potential rate relief at its upcoming board meeting in February, with markets currently pricing in over a 90% chance of a rate cut.
“In terms of investment implications, leaving money in cash may feel safe for Australian households, but cash loses purchasing power over time with rising living costs. Investing in a diversified set of income-producing assets would help protect and grow wealth in real terms.
“Low-cost exchange traded funds (ETFs) provide an accessible way to invest in assets that can generate income above inflation such as high yielding shares, fixed income or alternative option-based strategies like covered calls. By utilising income-focused ETFs in a diversified portfolio, everyday Australians can aim to maintain their standard of living while also helping plan for their financial future,” Jocum ended.
