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Expenditure: Purchasing power
Between 1974 and 1994, on average, prices increased 4.5 times. In the same period, disposable household incomes increased 5.5 times.
Goods and services cost more than ever before. However while prices have increased, incomes have generally increased faster. A person on the average wage can buy more now than 20 years ago. Despite the increase in prices, and the associated decrease in the purchasing power of money, people's purchasing power has increased.
Purchasing power
Purchasing power is the amount of goods and services that can be bought with a given amount of money. Increasing prices reduce the purchasing power of money.
The consumer price index (CPI) measures changes in the price of a basket of goods and services which reflects the buying patterns of an average employee household in an average Australian capital city. The CPI does not accurately reflect the change in the cost of goods and services for any individual or household, either within the CPI population group or outside it.
The CPI basket of goods and services is only representative of items bought by employee households in capital cities and not the whole population. Pensioners, for example, would be expected to have a different average basket of goods and services. However, studies have shown that average price changes in their basket have been broadly similar to those for the CPI basket.
Because the spending patterns of people change, it is important to revise the basket of goods and services periodically so it reflects the current expenditure patterns of the CPI population group. The basket of goods and services was revised most recently in 1992.
As well as revisions to the items within the basket of goods and services, some items change in quality over time. For example, a standard loaf of bread in 1974 was a 2lb home delivered unsliced white loaf. In 1994 it was a 680g sliced white loaf sold in a supermarket. The statisticians responsible for the price index evaluate the effects of quality change separately from price change.
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Price increases
In 1974 the average cost of a litre of milk in Sydney was 30c compared to $1.03 in 1994. Over the same period the average price of 1kg of rump steak in Sydney increased from $3.24 to $12.62. Overall, an average basket of goods and services that cost $100 in 1974 would have cost $449 in 1994.
In 1974 a jar of jam was the cheapest of the selected items but by 1994 it was the third most expensive. Over this period the price of jam increased 8.4 times, compared to the price of the average basket of goods and services increasing 4.5 times. Part of this difference may be accounted for in the change in the quality of jam over this period.
Between 1974 and 1984, all of the selected items, except eggs, more than doubled in price, with jam increasing 4.7 times, and bread increasing 3.6 times. However, between 1984 and 1994 the increase in prices was much slower. None of the selected items doubled in price, and butter only increased in price by 5%. This pattern reflects the general increase in the CPI over these periods. Between 1974 and 1984 the CPI increased 2.7 times, while in the next ten years it increased only 1.7 times.
AVERAGE RETAIL PRICES OF SELECTED GOODS, SYDNEY
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 | 1974 | 1984 | 1994 |
| Item(a) | $ | $ | $ |
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| 1 litre milk | 0.30 | 0.68 | 1.03 |
| 500g butter | 0.68 | 1.59 | 1.68 |
| 680g loaf of white bread | 0.24 | 0.89 | 1.67 |
| 1kg rump steak | 3.24 | 7.64 | 12.62 |
| 1kg sausages | 0.98 | 2.47 | 3.51 |
| 1kg onions | 0.43 | 1.01 | 1.16 |
| 825g tin of peaches | 0.40 | 1.10 | 1.92 |
| 1 dozen 55g eggs | 0.84 | 1.54 | 1.91 |
| 2kg white sugar | 0.47 | 1.30 | 2.04 |
| 500g jar of jam | 0.28 | 1.30 | 2.32 |
| 250g tea | 0.36 | 1.36 | 1.82 |
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(a) Item prices in 1974 and 1984 have been adjusted to reflect the quantity of the equivalent product sold in 1994. Some items have changed slightly in nature, and so are not directly comparable.
Source: Average Retail Prices (annual averages)
INCREASE IN AVERAGE PRICES 1974-94
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| Goods and services with the fastest increase in price | Increase | | Goods and services with the slowest increase in price | Increase |
| ratio | | | ratio |
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| Cigarettes & tobacco | 10.0 | | Poultry | 2.0 |
| Government owned dwelling rents | 9.4 | | Appliances | 2.2 |
| Local government rates & charges | 7.1 | | Postal & telephone services | 3.0 |
| Health services | 6.4 | | Pork | 3.3 |
| Hairdressing services | 6.0 | | Lamb & mutton | 3.3 |
| Urban transport fares | 5.9 | | Men's & boys' clothing | 3.7 |
| Dry cleaning & shoe repairs | 5.9 | | Footwear | 3.8 |
| Consumer price index | 4.5 | | Consumer price index | 4.5 |
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Source: Consumer Price Index (annual averages)
Variation between goods
Although the overall price of an average basket of goods and services has increased 4.5 times in the last 20 years, the prices of different components of that basket have increased at different rates. The average price of cigarettes and tobacco increased more than ten times. The rapid increase in the cost of cigarettes and tobacco mainly reflects increased government charges. Rent paid on government owned dwellings increased nearly ten times, more than twice the rate of the CPI, mainly due to the decrease in government subsidies for public housing.
Between 1974 and 1994, the price of poultry and household appliances increased at less than half the rate of the average basket of goods and services, reflecting the changes in the production and distribution of these goods.
Regional differences
Prices vary between cities. For example, in 1994 leaded petrol was cheapest in Brisbane. At an average of 60.8c per litre it was 7.2c per litre cheaper than the next cheapest capital city (Sydney). Rump steak was most expensive in Darwin ($12.69/kg) and Sydney ($12.62/kg), and cheapest in Perth ($10.56) and Melbourne ($10.98). At $1.54/kg the price of oranges in Sydney was nearly twice the price in Canberra (78c/kg).
These price differences reflect average prices in 1994. While the differences may fluctuate in the short-term, the overall increase in prices is very similar between the capital cities. Between June quarter 1974 and June quarter 1994 prices in Adelaide increased 4.7 times, only 3% higher than the national average. In Brisbane prices increased 2% less than the national average.
AVERAGE RETAIL PRICES OF SELECTED GOODS, 1994
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| 1 litre petrol(a) | 1 loaf bread | 1 litre milk | 1kg rump steak | 1kg laundry detergent | 1kg oranges |
| Capital city | cents | $ | $ | $ | $ | $ |
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| Sydney | 68.0 | 1.67 | 1.03 | 12.62 | 4.41 | 1.54 |
| Melbourne | 68.9 | 1.55 | 1.05 | 10.98 | 4.48 | 1.18 |
| Brisbane | 60.8 | 1.47 | 1.06 | 11.43 | 4.71 | 1.11 |
| Adelaide | 70.5 | 1.25 | 0.99 | 11.43 | 4.34 | 0.82 |
| Perth | 69.0 | 1.34 | 1.05 | 10.56 | 4.65 | 1.46 |
| Hobart | 75.2 | 1.55 | 1.12 | 11.08 | 5.01 | 0.99 |
| Darwin | 73.1 | 1.71 | 0.95 | 12.69 | 4.87 | 1.45 |
| Canberra | 71.7 | 1.68 | 1.07 | 11.11 | 4.48 | 0.78 |
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(a) Leaded petrol.
Source: Average Retail Prices (annual averages)
Earnings and disposable income
Average male earnings is the average wages and salaries received by men employed either part-time or full-time. It includes ordinary time and overtime earnings. Male earnings have been used in this review because comparable data for female earnings are not available in a long time series.
Disposable income per capita is the total household income less income tax, other direct taxes, fees, fines etc., consumer debt interest and unrequited transfers to overseas as estimated in the national accounts, divided by the total estimated resident population. This represents the average amount of money a person has available to spend on goods and services.
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Income
While the price of the average basket of goods and services increased 4.5 times between 1974 and 1994, average full-time male earnings increased 13% more. Disposable income per capita increased 5.5 times (22% more than the CPI). The difference between the increase in male earnings and disposable income per capita is largely due to the increasing number of women in paid employment and the closing of the gap between men's and women's earnings (see Differences in men's and women's earnings). Over this period unemployment benefits increased 26% more than the CPI and the aged pension increased 36% more. This rapid growth reflects the changes in the way increases in social security payments are calculated (see Australian Social Trends 1994, Social security transfer payments).
VALUE OF WEEKLY INCOMES
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| 1974 | 1994 | Increase |
| Income | $ | $ | ratio |
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| Average male earnings(a) | 133 | 658 | 4.9 |
| Disposable income per capita | 56 | 305p | 5.5 |
| Aged pension | 26 | 159 | 6.1 |
| Unemployment benefit | 26 | 147 | 5.7 |
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(a) Average ordinary time full-time male earnings
Source: Average Weekly Earnings; Australian National Accounts: National Income, Expenditure and Product; Estimated Resident Population; Department of Social Security Annual Report
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| International comparison | | | | | |
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| Overall, in 1990 the prices of goods and services in Australia were very similar to those in other OECD countries. Average OECD prices were only 1% higher than Australian prices.
Of the countries selected, Japan had the highest prices, 27% higher than in Australia. However, incomes were also higher in Japan than in Australia. The price of bread in Japan was almost double the price in Australia. This reflects the cultural and dietary differences between the two countries.
New Zealand and the United States had, on average, the lowest prices, 13% and 11% lower than Australian prices respectively.
The overall price levels in Australia were similar to those in Canada and Italy (which were 2% higher), and the UK (4% lower). However within this overall picture, there was significant variation in prices. In Italy clothing was less than half the price it was in Australia, but rent and water charges were 50% higher. | |
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| RELATIVE PRICE LEVELS IN SELECTED OECD COUNTRIES, 1990 | |
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| Country | Bread | Rent(a) | Clothing | Total(b) | |
| New Zealand | 97 | 93 | 80 | 87 | |
| United States of America | 101 | 79 | 93 | 89 | |
| United Kingdom | 110 | 101 | 75 | 96 | |
| Australia | 100 | 100 | 100 | 100 | |
| Canada | 121 | 104 | 101 | 102 | |
| Italy | 136 | 149 | 46 | 102 | |
| France | 139 | 165 | 74 | 109 | |
| Germany | 134 | 144 | 103 | 113 | |
| Japan | 199 | 121 | 120 | 127 | |
| Organisation for Economic Cooperation and Development countries (OECD) | 130 | 106 | 84 | 101 | |
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| (a) Gross rent and water charges.
(b) The basket of goods and services in each country reflects the purchasing patterns of the entire population in that country, not just the CPI population group.
Source: Gross Domestic Product at Purchasing Power Parity in OECD Countries (5226.0) | |
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Purchasing power of earnings
The time it took a person on the average male wage to purchase an average basket of goods and services decreased by 9% overall between 1974 and 1994. However, the change in the amount of time a person had to work to earn enough to a buy specific item varied according to the item.
Between 1974 and 1994 the time it took at average male earnings to earn enough to buy a dozen eggs fell by 54% to 7 minutes. Butter also became much more affordable over this period. The length of time it took to earn enough to buy a loaf of bread increased by 38%, and the time it took to earn enough for a jar of jam increased by 71%. Tea and tinned peaches were about as affordable in 1994 as in 1974.
MINUTES OF WORK, AT AVERAGE MALE WAGE, TO PAY FOR SELECTED ITEMS(a)
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| 1974(b) | 1994 | Change |
| Item | mins | mins | % |
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| 1 litre milk | 5 | 4 | -29.8 |
| 500g butter | 12 | 6 | -49.9 |
| 680g loaf of white bread | 4 | 6 | 37.9 |
| 1kg rump steak | 58 | 46 | -21.0 |
| 1kg sausages | 18 | 13 | -27.4 |
| 1kg onions | 8 | 4 | -45.2 |
| 825g tin of peaches | 7 | 7 | -2.0 |
| 1 dozen eggs | 15 | 7 | -53.8 |
| 1kg white sugar | 8 | 7 | -12.6 |
| 500g jar of jam | 5 | 8 | 71.0 |
| 250g tea | 6 | 7 | 2.9 |
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(a) At Sydney prices.
(b) Item prices in 1974 have been adjusted to reflect the quantity of the equivalent product in 1994.
Source: Consumer Price Index; Average Weekly Earnings; Labour Force Survey
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