How is the cost of living measured?
Cost of living can be calculated in a number of ways, but the main option used in Australia is the Consumer Price Index (CPI). “The simplest way of thinking about the CPI is to imagine a basket of goods and services comprising items bought by Australian households,” explains the Australian Bureau of Statistics (ABS). “Now imagine the basket is purchased each quarter. As prices change from one quarter to the next, so too will the total price of the basket. The CPI is simply a measure of the changes in the price of this basket as the prices of items in it change.”
The basket is divided into the following 11 major groups:
- Food and non-alcoholic beverages
- Alcohol and tobacco
- Clothing and footwear
- Housing
- Furnishings, household equipment and services
- Health
- Transport
- Communication
- Recreation and culture
- Education
- Insurance and financial services
The CPI then shows whether the cost of products has increased or decreased over the quarter and/or year and by how much. This is something we all know as inflation. So, if the CPI increased by 6% over 12 months that means the annual inflation rate is 6%.
It’s also worth noting that your personal inflation rate could be higher or lower than official numbers. It could be the types of items you buy or it could be because of your stage in life. The ABS offered this example: Younger households may incur a higher proportion of their expenditure on housing and child care, while those households entering the older age groups may incur increasing expenditure on medical services.
Canstar’s Cost of Living Comparison
For the purposes of Canstar’s Cost of Living Comparison, we have focused on a range of everyday bills including a mortgage, credit card, car loan, health insurance, home insurance, car insurance, pet insurance, life insurance, income protection insurance, gas, electricity, NBN, mobile plan and groceries. Canstar found the average price for a range of products that meet the needs of our hypothetical family of four and then we looked for savings. In some cases, that was simply a matter of switching to the cheapest product and in others, we incorporated our value-based star rating system and used the average price of 5-star rated products. You can see the assumptions that were made in the table and in the fine print underneath it.
