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The strange case of the national delusion on cost of living

Polling has found many people think the cost of living is soaring — when in fact it’s not. Crikey investigates which purchases we’re particularly deluded about.

Last week, Essential Research asked voters to give their impressions of how much prices had changed on a range of basic consumer items over the last two to three years. The results give us an idea of how realistic voters actually are about what’s happening with inflation.

Let’s start with something on which there is universal agreement: 70% of voters said they were paying “a lot more” for electricity and gas (22% said “a little more”). And that corresponds with reality: according to ABS inflation data, electricity prices have increased by 38 index points since December 2009, or over 16% a year. Gas has gone up by 29 index points, or around 11% a year.

So far so good — data and perceptions match. But what about petrol? That’s gone up by just over 16 index points, or just over 6% a year on average — ahead of CPI, but not in the same league as electricity. Yet 50% of voters say they’re paying a lot more than they were three years ago; 33% say a little more. That’s bordering on the implausible, but not wildly inconsistent with the electricity result.

On water, perceptions look more plausible: 47% said they were paying “a lot more” for water, and water prices have increased 22 index points or around 9% a year on average.

After that, though, there’s a growing gulf between perceptions of inflation and reality. Forty three per cent of voters say they’re paying “a lot more” for insurance. It’s true that many households in Queensland have been hit by higher premiums or even struggled to get insurance since the 2011 floods. But insurance across the country has only increased 10 index points, or less than 4% a year — around about CPI.

And 36% of voters complain they are paying “a lot more” for fruit and vegetables. Fruit and veg prices have been on a rollercoaster ride due to cyclones over the last couple of years, but in net terms, they’ve only gone up just over 10 index points since December 2009, or less than 4% a year; 43% of voters accurately said they were paying “a little more”. Twenty eight per cent said they were paying “a lot more” for food generally, when in fact food and non-alcoholic beverages prices have grown at less than the CPI; the 24% who thought they were paying “about the same” for food were more correct.

Health costs have gone up 15 points, or just over 5% a year, but 33% said they were paying “a lot more” for medical expenses. Just under a qaurter, 24%, thought they were paying “a lot more” for housing (both mortgages and rent) when housing costs have only increased slightly faster than inflation — however, that reflects the fact that 40% of respondents who rent said they were paying a lot more for rent, a sentiment we know to be accurate, especially in cities like Sydney.

Education costs have gone up by around 16 points, or about 6% a year, ahead of inflation, but only 24% said they were paying “a lot more”.

One category stands out as being the basis of what is almost a national delusion. Clothing has fallen in price by 7 index points or around 2% a year each year, since 2009 (kids’ clothing has fallen by more, 11 points). But 21% of voters say they’re paying “a lot more” for clothing, 30% say they’re paying “a little more” and 37% say they’re paying “about the same”. Only 9% accurately said they were paying “a little less”.

Clothing — and education — are less frequent purchases, so voters’ failure to properly comprehend price movements is perhaps more understandable (electricity bills are only quarterly but have attracted huge media and political attention). It’s also the case (except for property-related products like water and insurance), that renters tend to be more sensitive to price rises than those who have a home with a mortgage, who in turn are more inclined to see big price increases than those who own their home outright. For example, 25% of renters thought they were paying a lot more for clothing and 41% said they were paying a lot more for fruit and veg.

So frequency of purchase contributes to perceptions of price rises, as does income, to the extent that renting is a proxy for income. And there’s another factor that distorts perceptions: partisanship. On average, 10% more Liberal voters say they are paying “a lot more” for products compared to Labor voters.

Is that because Labor voters have a positively-skewed perception of the economy, or because Liberal voters have a negatively-skewed perception? A bit of both, it seems, but more the latter. Both share the delusion about clothing prices — 20% of Labor voters say they’re paying a lot more for clothing and 23% of Liberal voters. But 77% of Liberal voters more realistically say they’re paying a lot more for electricity, compared to 67% of Labor voters.

Other categories, though, suggest Liberal voters see price rises everywhere even when they don’t exist. Fifty eight per cent said they were paying “a lot more” for petrol, compared to 41% of Labor voters. Forty two per cent said they were paying a lot more for fruit and veg compared to 28% of Labor voters. Insurance was 50% to 38%. Food, 32% to 23%. Medical, 42% to 25%.

All this illustrates why it’s no good complaining about the current generation of politicians who eternally claim that families are “doing it tough” and struggling to “make ends meet”. A substantial proportion of voters will always be convinced inflation is much worse than it is, and in fact filter their perceptions of inflation through partisan bias. To tell voters otherwise is to tell them something they don’t already agree with, and that’s not a strategy widely in use among political tacticians currently.

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  • 1
    fredex
    Posted Thursday, 7 February 2013 at 1:26 pm | Permalink

    Its not “strange” at all.

    It’s entirely as expected and according to the presentation in the mass media.

    Peter Martin, at his site [you can check it out], has a snip of Ch. 10 news totally misrepresenting the reality [and letting an ex-state LOTO blame the ALP in the process as an added bonus].
    Ch 9 did something the same about the same time and got quoted by the Liberals in a press release that was later ‘unreleased’.
    The COALition, of coarse [sic], bleats about the rising COL virtually on a daily basis - and gets dutifully repeated by the media.

    No wonder many people are misled.

    So why the surprise?
    Propaganda rules.

  • 2
    Mark Duffett
    Posted Thursday, 7 February 2013 at 1:27 pm | Permalink

    It’s this sort of thing that really makes you have second thoughts about democracy.

  • 3
    Holden Back
    Posted Thursday, 7 February 2013 at 1:32 pm | Permalink

    Isn’t part of the basic assumption of consumers noticing prices falling that they are always buying the same things?

    Let’s say you have children - the buggers keep growing, and you’re not going back to buy the same items of clothing each year. It would be difficult to perceive the overall reduction, as your growing children develop tastes and become part of particular target markets.

  • 4
    Michael Hilliard
    Posted Thursday, 7 February 2013 at 1:49 pm | Permalink

    As FD said, our sitting around and complaining is world best practice.

  • 5
    Apollo
    Posted Thursday, 7 February 2013 at 1:49 pm | Permalink

    So I’m about right to suggest that the dole only needs to be raised from 246/W to 260/W now to catch up and 3% more next financial year.

    Petrol is only a tat higher than in 2007 when Howard lost the election.

    Problem is low income earners get hit by rent increase.

    I wonder if they half the amount of negative gearing rebates over 5 years by reducing 10% per year, or over 7 years by reducing 7% per year ( or even allow only full deduction for the first investment home loan and reduce the rest); and use the budget savings to build affordable public housings and infrastructures that would actually boost productivity and living standard without damaging the housing market.

    I saw a documentary on SBS on Saturday about people who collect recyclable at rubbish dump and the art project to help them. It was sad and inspiring at the same times, it brought tears to my eyes. Some of them even had to eat food from the garbage. Australians just whine too much.

    I went to a few functions over the festive season, half of the food was wasted, made my heart ache. The amount of energy to grow, transport, storage and cook all wasted and more pollution to the environment. Means while the farmers get squeezed by the whole salers and the supermarket. There should be a law and allow customer to waste 100g of food only and $1 per gram tax for anymore excess wastage, give back to the farmers and the fishermen.

  • 6
    Apollo
    Posted Thursday, 7 February 2013 at 1:53 pm | Permalink

    SBS documentary on Brazil

  • 7
    Honest Johnny
    Posted Thursday, 7 February 2013 at 3:10 pm | Permalink

    Of course when you add wage rises to the equation, the national delusion becomes even more strange. I think Bernard has done some earlier work showing that the majority of voters are actually better off now than a few years ago.
    Having said that, there are some sections in our society where people are “doing it tough”, for example people living on welfare.

  • 8
    Hunt Ian
    Posted Thursday, 7 February 2013 at 3:13 pm | Permalink

    I don’t have second thoughts about democracy as such but do have second thoughts about “democracy” in Australia, where ownership of MSM is more highly concentrated than in most other formal democracies. All of our formal democracies suffer from the fact that only a few in government and MSM set the public agenda of debate (treasury was obviously interested in getting the govt to free taxing income from super but the belting from MSM forced the govt to reiterate its position that over 60s would not have their super income taxed, which then let some MSM belt the govt for changing its mind) and only a few control commentary in the MSM. What would be the chances of a political party to win elections, if it campaigned to have the dominance of MSM reduced?

  • 9
    Mike Flanagan
    Posted Thursday, 7 February 2013 at 3:15 pm | Permalink

    Your so right Apollo. There are millions of Indians that have never had any other source of money or sutainance than the trash and food waste disposed of by the middle classes.
    A recent UK published study showed that in excess 20% of all foodstuffs end up in the waste.

  • 10
    John Bennetts
    Posted Thursday, 7 February 2013 at 3:29 pm | Permalink

    Quote:”according to ABS inflation data, electricity prices have increased by 38 index points since December 2009, or over 16% a year.”

    Let’s assume that the period in question is only 3 years and that prices have risen by 38%. That is less than 12 percent per annum, compounded.

    Unless, that is, the phrase “38 index points” means something altogether different and not yet defined.

    With respect, Mr Keane, this is no way to say whatever it was that you were trying to say. Was half of your article chopped by the subs? Or did a dog eat your homework?

  • 11
    AsGrayAsGray
    Posted Thursday, 7 February 2013 at 3:51 pm | Permalink

    @ Hunt Ian, and @fredex
    Hear, Hear!

  • 12
    Hamis Hill
    Posted Thursday, 7 February 2013 at 5:04 pm | Permalink

    Now wasn’t the sole subject of conversation at millions of middle class dinners during the “golden years” the rise in the value of their homes?
    The continual, lottery-like rise in house prices defined and named the “golden era”.
    The cost of living during this time?
    No-one gave a damn! They couldn’t care less. the cost of living paled in comparison to the capital gains.
    And since the GFC? No Capital gains, no euphoric dinner party conversations of burgeoning wealth(look, everybody I’m a millionaire, let’s have a toast to Little Johnny). And now like debt junkies coming down from a high those terrible costs of living that never impinged on their consciousness during the whole of the Howard era just will not go away.
    Capiyal Gains were the economic endorphins of the Howard era and now the junkies feel the pain and, lo and behold,
    Labor is to blame.
    It will be shadenfreude, joy at the misfortunes of these debt junkies, when they go back to their dealers and find themselves writhing in the python squeeze of the worst withdrawal symptoms they will ever experience; the inevitable Abbott Recession.
    Check your capital gains then debt turkeys and your cost of living?
    Who says you’re going to live?
    Hard lessons ahead as the first become last and the last, who know how to survive mean times, rise above these fallen fools to become first.
    Hey, Abbottt and Rudd brought the Bible into this!
    Is psychology left out of economics degrees?
    Too onerous?

  • 13
    Squizzie
    Posted Thursday, 7 February 2013 at 5:55 pm | Permalink

    Bernard, Thanks for the article. I think we need to look at the ABS figures for insurance. Our insurance premium on an average family home went from $487.64 in 2011 to $637.76 in 2012(up 30.79%) and then $823.03 (up 29%) this year. No claims and a very moderate increase in sum insured.
    It’s possible the ABS figures do not include the most recent twelve months, but still a long way from what I’m paying, and I’m in Sydney, not on a flood plain!

  • 14
    Bernard Keane
    Posted Thursday, 7 February 2013 at 7:08 pm | Permalink

    John Bennetts, index points aren’t straight percentage figures, they’re the change in indices between the two dates; the percentage change is the change divided by the earlier index and then adjusted for the number of years - as per the ABS guidelines for calculating changes in indices. See note 8 here: http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/6401.0Explanatory%20Notes1Dec%202012?OpenDocument

  • 15
    Apollo
    Posted Thursday, 7 February 2013 at 7:41 pm | Permalink

    Thanks Mike. It’s just so crazy that we waste so much food in the Western world and harm the enviroment while people in other countries don’t have food to eat.

  • 16
    Apollo
    Posted Thursday, 7 February 2013 at 7:50 pm | Permalink

    Thanks Mike. It’s just so crazy that we waste so much food in the Western world and harm the environment while people in other countries don’t have food to eat.

    What’s going on with Crikey, are you trying to hack my computer?. So slow and don’t display my post.

  • 17
    Demas
    Posted Thursday, 7 February 2013 at 7:51 pm | Permalink

    The other national delusion propagated by both parties (more so by the Lieberals) is that we are a high taxing country. Australia being the 6th lowest taxed country in the OECD. Korea, USA,Turkey, Chile & Mexico are below us. Are those the countries we want to emulate?

    http://www.taxpolicycenter.org/briefing-book/background/numbers/international.cfm

  • 18
    HughG
    Posted Thursday, 7 February 2013 at 11:12 pm | Permalink

    A vast majority of Aussies live in Big cities such as Sydney and Melbourne.

    The Price of real-estate in these places has skyrocketed with no sign of coming down.

    When I last lived in Sydney, we paid 450 a week for a three bedroom townhouse, recently build and just refitted and recarpetted, with a car space. This was 2006. On return, I can expect to pay, in Newtown, for a less appealing property $300 a week just for my room in a house-share.

    I dare say for a lot of people the perception must come on the increasing lack of disposable income.

    Oh and does anyone else get incredibly tired of people trying to fit Australia into british class systems by labelling people “middle class” all the time? Pretty pathetic in my opinion.

  • 19
    Mark Duffett
    Posted Friday, 8 February 2013 at 9:12 am | Permalink

    Holden Back, I reckon you’re onto something there.

  • 20
    drsmithy
    Posted Friday, 8 February 2013 at 10:08 am | Permalink

    Of course when you add wage rises to the equation, the national delusion becomes even more strange.

    I question the assumption that the distribution in wage increase has been uniform.

  • 21
    John64
    Posted Friday, 8 February 2013 at 11:03 am | Permalink

    Reality is unimportant. It’s people’s perception of what reality is that matters.

  • 22
    Boo
    Posted Friday, 8 February 2013 at 11:30 am | Permalink

    Hamis and Hugh have hit the nail on the head. The private debt in this country is massive and not surprisingly people are starting to blame the cost of living as the problem rather than the cost of real estate.

    Fuelling unsustainable private debt, selling off every public asset not nailed down, lots of middle class welfare. Running a structral deficit. And we have the tabloids foaming at the mouth about the ALP being economic vandals. Even if they are, they are amateurs compared to the liberals.

  • 23
    Holden Back
    Posted Friday, 8 February 2013 at 12:51 pm | Permalink

    Another factor is consumer capitalism constantly encouraging people to spend more, and that putting about the fallacy that more expensive goods must be better. Veblen’s concept of conspicuous consumption applies across all levels of our society now. If you’ve switched from Skipping Girl apple cider vinegar to Italian balsamic, your cost of living has increased. But can you now switch back, if all your friends and relatives have done the same?

  • 24
    Posted Friday, 8 February 2013 at 1:51 pm | Permalink

    What is an acceptable level of inflation for consumers? 5% per year? How does that reconcile with the high AUD?

  • 25
    drsmithy
    Posted Friday, 8 February 2013 at 2:19 pm | Permalink

    Another factor is consumer capitalism constantly encouraging people to spend more, and that putting about the fallacy that more expensive goods must be better. Veblen’s concept of conspicuous consumption applies across all levels of our society now. If you’ve switched from Skipping Girl apple cider vinegar to Italian balsamic, your cost of living has increased. But can you now switch back, if all your friends and relatives have done the same?

    The big increases in costs of living are largely not in discretionary items, they’re in essentials. *That* is why people are feeling the pinch - because cutting back on the things that can easily be cut back on, makes relatively little difference.

  • 26
    Alice Suttie
    Posted Friday, 8 February 2013 at 4:15 pm | Permalink

    I think the perception of “a lot” needs contextualising. Over the last three years my salary as a nurse has only gone up by an average of around 3% each year in keeping with the current salary agreement.
    When faced with everything else going up by somewhere between 6-9%, trust me, that 6-9% is “a lot”.

  • 27
    Hamis Hill
    Posted Saturday, 9 February 2013 at 12:55 pm | Permalink

    Taking up Hugh’s point, anyone who has spent any amount of time in Australia’s “Mother Country” will recognise that most Australians identify as “middle class” aspirationals, as shown by the adulation of the ultimate middle class pretender John Howard.
    Sickening and pathetic, but disgustingly true, with all the real estate policies from the late sixties on devoted to feeding the petit burgeois pretentions concerning the conspicuous consumption of the right address.
    But Hugh is right in identifying how there is consequently hardly any choice for those who do not wish to live conspicuously with regard to the amount they pay for housing. Free Market anyone?
    Affordable housing? Ugh! How working class!
    Now unless middle class Australia, (care of the credit card?) is intent upon eliminating working class Australians altogether they had better upgrade to the aristocratic concept of Noblesse Oblige and abandon the delusion and irrationality that “Looking after number one” will deliver a just nation.
    Aristocrats rel ied upon their “clientele” (to use the ancient Roman term)to back them up in contests with other aristocrats.
    Empire building was a contest of aristocrats.
    Protecting “National” sovereignity is beyond the dreams, delusions and credit driven pretensions of “Middle class Australia”.
    Middle class self-centered “entitlement” is no substitute for noblesse oblige; middle class consciousness is a curse which is destroying Australia and as Hugh indicates is happening in the myopic, major cities whose inhabitants hardly know who or where they are.
    Sorry.

  • 28
    blackdog
    Posted Sunday, 10 February 2013 at 12:51 pm | Permalink

    These figures just show that anything can be “proven” with playing around with figures and boundaries of definitions!! Give a person hardly any money to live with - and he/she will be highly sensitive to even 50c increases because the miniscule income we have can only stretch so far. Turning cost of living into percentages is just stupid. It is typical of bureaucratc and wealthy people who don’t have to live in the real world, juggling the demands of the real world. How about a 5 or ten year gap and then you will definitely see some big differences!! My rent has increased by $50 in ten years…my rent assistance has increased (I think) $15!! Petrol is over $1.50 a litre where I live…10 years ago?? Don’t you think I noticed this increase in my ability to cover all living expenses/necessities and especially to support my 2 kids on my own, that I have a realistic handle on what has happened to prices, especially of necessary products? How about dairy and meat?? I can hardly afford red meat anymore..only mince and sausages and even they have gone up, or what about lamb shanks which used to be a really cheap cut of meat…???

    The other issue of concern not mentioned here, is WHY are somethings like some foods and clothing cheaper than last few years? Have you checked what country your stuff is manufactured in lately? Even heaps of the chips, biscuits etc are made in other countries with cheaper labor costs (and the neglects on human rights that enables the cheap cost of production). This means our own manufacturing and priduction jobs are leaving our shores…how does this help the wellbeing of our own nation, jobs, people’s futures, purchasing power in the long term???

    Or have you considered what th main supermarkets do to our farmers in order for you to have your cheap apples or oranges? They offer them prices barely able to cover costs of production…farming families and communities everywhere are going broke, suffering, struggling by hadly able to meet their own living costs…

    So in the long term - how great is this little lie of low cost of living?? Things are going to get WAY more expensive in the long term - just you wait til our pissweak pollies and their neoliberal policies sell off our food bowls to corporations and we have no control/voice over anything - no agricultural industry then!! What do you think will happen? Or how about with pollies not making any real reforms/policies to assist in protecting the environment and placing ideas in the pipelines for global warming…what do you think will happen to food, or hell, even water?!!!

    Without vision the people perish…

  • 29
    Hamis Hill
    Posted Wednesday, 13 February 2013 at 1:52 pm | Permalink

    With the ascension of the Abbott administration, we will witness the last throes of the insidious “Dispossession through (unsustainable) private debt” policy of conservative politicians, who merely represent the international “agents” of this process.
    An impoverished nation requires foreign capital and foreign capital requires an impoverished nation.
    Who’s winning?
    Is this why Abbott is so keen for Australia to emulate the failed policies of his overseas counterparts?
    The recession we had to have? All according to established financial formulae?
    It will be a massive “fire sale”, conveniently to be hidden by the civil strife that conservatives so love to engender among their captive electorates.
    Howard’s battlers will be distracted by poverty induced battles amongst themselves as the ancient conquerors’ policy of Div ide et Vin cit is ramped up.
    All enabled, of course, by a nation-wide amnesia of the lessons of history.
    The first conservative victory was to remove history from the school curricula, because it some how offended multi-cultural sensitivites, initially of the “proud” Irish Catholic variety, then enthusiastically taken up by every other “deprived” sub-group suffering from an inferiority complex.
    That lot, by keeping their wounds “Green”, have essentially deprived all other Australians of their “proud” cultural heritage: such as “Britons never, never, never shall be slaves”?
    That national back bone replaced by jelly?

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