The Australian Bureau of Statistics is the official determiner of inflation in the economy. The calculation for their Consumer Price Index is based on the cost to purchase a basket of goods. This basket, including weightings, are currently as follows :
- Food (15.44%)
- Alcohol and tobacco (6.79%)
- Clothing and footwear (3.91%)
- Housing (19.53%)
- Household contents and services (9.61%)
- Health (4.70%)
- Transportation (13.11%)
- Communication (3.31%)
- Recreation (11.55%)
- Education (2.73%)
- Financial and insurance services (9.31%)
(NB - these allocations are soon to be adjusted in the June quarter calculations.)
One potential problem with the inflation calculations as they relate to retirees is whether the basket of goods is a fair representation of what people in retirement are purchasing. This is important because the latest publication issued in April suggests that prices for food, alcohol and tobacco, housing (including utilities), education and health have been the major contributors to inflation over the past year. Out of these I would suggest that retirees spend less on average for education but more on average for the other categories.
This would suggest that inflation has run at a higher rate than the 3.3% annual rate calculated by the ABS.
Today, The Association of Superannuation Funds of Australia have published their latest Retirement Standard report. This publication attempts to calculate what a modest or comfortable lifestyle would cost for singles or couples.
These calculations are also subject to the risk that the definition of what retirees are purchasing used in the study does not match the actual situation but I believe it probably provides a better reflection due to the more concentrated focus.
The latest figures relating to the period ending December 2010 suggest the following levels of income would be required in retirement:
Modest lifestyle - single - $21,218
Modest lifestyle - couple - $30,708
Comfortable lifestyle - single - $39,393
Comfortable lifestyle - couple - $53,879
For further details as to how these amounts are calculated please refer to ASFA's Retirement Standard - December 2010
Using these calculations compared to past calculations should give a clearer indication of inflation being experienced by retirees. According to the Retirement Standard figures for the 12 months to the end of December inflation has been:
Modest lifestyle - single - 6.11%
Modest lifestyle - couple - 9.36%
Comfortable lifestyle - single - 2.03%
Comfortable lifestyle - couple - 4.16%
The ABS official inflation figure for the same 12 month period was 2.7%.
The results from the ASFA Retirement Standard study are above the ABS data for all but singles looking for a comfortable lifestyle.
A word of caution, ASFA rejigged their definitions for determining calculations starting with the March 2010 study. Therefore we have not yet seen a full year with these new definitions and calculation methods. Not until the next publication will be able to be confident of what the data is telling us.
In a nutshell, it does appear plausible that inflation for retirees is running at a hotter pace than the ABS's official inflation figures might otherwise suggest. This is very important for those in and preparing for retirement as a clear understanding of the movement of prices will help inform what a sustainable level of draw down from investments and superannuation pensions will look like.
Regards,
Scott
