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You know you have a cost of living problem when Ross Gittins claims otherwise

Christopher Joye
17 February 2011

We all know that Ross Gittins does the RBA's heavy lifting for it. For ages now, I have been arguing that the RBA will be getting very worried about inflation expectations. And when Ross Gittins publishes a pretty remarkable article arguing that the cost of living is not really a problem (wrong), that it has not really increased much more than the CPI (wrong), and that prices are falling in many spending classes (but not overall, Ross!), you know the RBA is having kittens about this subject.

In short, they are desperately trying to convince everyone that inflation will remain low and stable. This is a hard task when you have missed your inflation target over the last 11 years, with headline inflation averaging 3.1 per cent since January 2000, and core averaging three per cent. Check out what Gittins says, which echoes the RBA's arguments last Friday:

“This means that, since interest rates and fruit and vegie prices regularly go up and down, over time much of the difference between CPI inflation and the cost of living comes out in the wash. Consider this: over the 11½ years to December, the CPI rose by 43.8 per cent, whereas the living-cost indexes rose by 43.6 per cent for self-funded retirees, 48 per cent for employees, 48.4 per cent for age pensioners and 50.3 per cent for non-aged welfare recipients.”

Err, sorry Ross, but you are telling us that most Australians' cost of living rose by more than the CPI, which kinda defeats your thesis.

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