Feb 7, 2013

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.

Bernard Keane — Politics editor

Bernard Keane

Politics editor

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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29 thoughts on “The strange case of the national delusion on cost of living

  1. fredex

    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

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

  3. Holden Back

    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

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

  5. Apollo

    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

    SBS documentary on Brazil

  7. Honest Johnny

    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

    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

    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

    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?

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