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Will the pain of Australia’s cost of living pressures be coming to an end soon?


Will the pain of Australia’s cost of living pressures be coming to an end soon?

In this week’s video insight, I discuss how Treasurer Jim Chalmers highlights that Australian wages are growing faster than the Consumer Price Index (CPI); a claim that overlooks the CPI’s failure to account for mortgage interest payments, thus not fully capturing the cost of living. With household debt and mortgage interest on the rise, I explore the expectation of an easing in the decline of real wages relative to living costs, amidst speculation of potential interest rate reductions.


Hi, I’m David Buckland and welcome to our first video insight for 2024.

Treasurer Jim Chalmers continues his chest beating by arguing Australian’s wages are at last growing at a faster rate than the Consumer Price Index (CPI). The problem with this claim is the CPI does not represent the cost of living because the Reserve Bank of Australia and Treasury decided from September 1998 to exclude the interest payments on mortgages.

When this decision was made over 25 years ago, the ratio of Australian households’ debt to disposable income was 60 per cent and the RBA official cash rate was 5.0 per cent. At that time, mortgage payments accounted for an average of $5 for every $100 of expenditure. Today, the ratio of households’ debt to disposable income is one of the highest in the Western World at around 200 per cent, whilst the RBA official cash rate is 4.35 per cent. Interest on mortgages is currently approaching $10.50 for every $100 of expenditure and for the more levered mortgagees that figure is closer to $15 for every $100 of expenditure.    

For context, $58 billion of mortgage interest was paid over the twelve months to September 2023, up 76 per cent compared with the $33 billion of mortgage interest paid in the previous corresponding twelve months. The points here are crucial. If the Consumer Price Index included interest payments on mortgages, then the increase in the cost of living would be closer to 9 per cent, rather than the stated 4 per cent. Second, any family with a big mortgage relative to their disposable income will be feeling the pinch with a solid decline in real wages.

As the Aussie consumer reins in their expenditure from the 13-interest rate increases in the 18 months to November 2023, it seems likely the Consumer Price Index will continue its decline over the foreseeable future. Of course, the “market” is now jumping on the “cut to interest rates” bandwagon. And this thesis is supported by the fact there are a further $265 billion of mortgage loans – written at rock bottom interest rates -– moving from fixed to variable over 2024 and H1 2025.

While any Australian family with a large mortgage is suffering from overall cost of living pressures, the good news is that pain – in terms of the solid declining real wages relative to the cost of living – should soon be coming to an end.

Thanks for watching, I look forward to speaking with you again soon and in the meantime you can follow us on Facebook and X.


Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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