DDU Inflation Study Year One Review

By | July 24, 2017

Author: Mr DDU.

It’s been 52 weeks since we started our inflation study, so now is a perfect opportunity to do an update post.

We decided to run the inflation study as a bit of fun but mainly to show how important it is for us to invest in assets that will pay increasing money over time, otherwise inflation will eat our lifestyle.

 

The things we decided to track were as follows:

  • The Government’s suggested annual living costs for a comfortable couple
  • (Mean) Average Australian House Price
  • Average Australian House Rent per Week
  • Water price per kilolitre
  • Aldi food basics basket (1 loaf of quality white bread, 700g carton of 12 free range eggs, 1kg of Australian ‘tasty’ cheese, 1kg of free range chicken breasts, 1kg of Pink Lady apples, 2kg washed potatoes, 375g jar of Nutella, 500g of regular salted butter, 455g jar of Vegemite and 12 rolls of 2 ply toilet paper)
  • A2 Milk 2L (priced from Coles Supermarket)
  • Current Year Toyota Corolla Ascent Hatchback Silver (from Toyota Australia Website), automatic transmission no add-ons
  • Newest iPhone (from Apple Australia Website) 4.7-inch screen for 16GB, 64GB and 128GB phones
  • Direct Return Flight with Qantas from Sydney to London (from Qantas website) booked for 3 months from today, returning 2 weeks later.
  • 4kg of Royal Canin Indoor Dry Cat Food (from Petbarn website)

We chose all the above items because they are things that we would very likely be affected by in early retirement. We may not buy an iPhone or Qantas flight but we would be getting something similar so it’s good to compare.

So, after a year, these are the changes in the prices:

That leaves us with a negative 3.8% inflation, AKA deflation, on the items that we have tracked over the year.

We couldn’t get the right comparative data in 2017 for the house rent and water, so we used a different provider/starting number in 2016.

A few interesting things stick out from the above table. The average Australian house price marched higher over a 12 month period and most household items increased by a reasonable figure of 2% to 3%.

The Australian dollar a year ago bought US 74.7c and now it buys about US 80c. That would be our guess as to why the Toyota Corolla and London flight have decreased in price by a large percentage. The interesting thing is that a new iPhone (the 7) has been released but it’s the same prices (in Aussie dollars) as the old phone. But with the strengthening of the dollar, its price has actually increased by around 7% in US dollar terms.

It’s interesting that most household things have increased in price by 2%+ yet the Govt suggested income has only gone up by 1.2%. One would guess that takes into account some things that have gotten cheaper, like flights.

Final thoughts

This first update shows that it’s important to have assets that at least grow income at the speed of inflation, which isn’t much at the moment. The thing that is most apparent is that house prices grew even more and that prospective first home buyers need to get saving up their deposit hard and fast if they want to catch up with the rising house prices.

Did any of the price changes surprise you? Have you noticed anything in particular go up or down a lot in price over the last year?

13 thoughts on “DDU Inflation Study Year One Review

  1. wealth from thirty

    Wow – average house price up 9%! I imagine that’s skewed toward the top end of ranges but that’s huge. As a saver for a house, it basically means if you’re not getting 9% interest on your savings, every year that goes by you buy less house with each dollar. There isn’t much chance I’d risk a house deposit in the stock market, so it’s a painful stat to read! Do you guys know if the Govt Cost of Living includes owning your own home?

    Reply
    1. Dividends Down Under Post author

      Thanks for the comment WF30, yeah it’s not great for non-homeowners is it?

      According to the source page ‘Both budgets assume that the retirees own their own home outright and are relatively healthy.’ So yes, it doesn’t include housing costs.

      Mr DDU

      Reply
  2. The Jolly Ledger

    I have been keeping my eye out for your inflation study. Interesting results for the first year. It will be even more interesting after 10 years I think. I keep trying to deflate my expenses thus my cost of living but it seems that I have hit a plateau. Now inflation has a chance to affect my expenses. Keep tracking, I find it super informative.

    Reply
    1. Dividends Down Under Post author

      Hey TJL, glad to know you’ve been looking forward to the update. I think that’s the most you can do – most things will keep going up in price over the long term so all we can do is control our spending.

      We will definitely keep updating this, we find it interesting too 🙂

      Mr DDU

      Reply
  3. Charlie

    Interesting data, like Jolly Ledger says, I think it will provide greater insight in the future. One factor I don’t see is healthcare. I’m finding as I age the frequency of health visits increase as well as medicines required. Even where insurance coverage is adequate, co-pays and travel expenses take a bite. Even your state system has inflation built in based on the levy percentage (income based) and who knows how much on the private side. Just a thought …

    Reply
    1. Dividends Down Under Post author

      Good points Charlie and healthcare is a big one. I think it’s hard to measure exactly what to track because health is very different for a long of people. The Govt Cost of Living is for a retired couple so that take into consideration some health costs.

      Maybe something in the future would be good to track like health insurance – we’ll have a think about it.

      Mr DDU

      Reply
  4. FerdiS

    Great study, thanks for sharing! It would be interesting to see follow-ups in future. I suspect some of those big-ticket items will change more significantly again.

    One of the lessons I learned early-on in life is that owning property is one of the best inflation shields you can have.

    Reply
    1. Dividends Down Under Post author

      We completely agree about owning property Ferdi, we will probably be buying a property in the next few years, but it will hard to say exactly when. Glad you like the study 🙂

      Mr DDU

      Reply
  5. Team CF

    You got to love fluctuating exchange rates 😉
    Perhaps better to pick a inflation basket that is more centered around Australian products to buffer some of the exchange rate fluctuations?

    Reply
    1. Dividends Down Under Post author

      Yep good point Team CF. I don’t mind that some items are affected by exchange rates but that’s just what the Aussie person would have to deal with – lots of our products and services come from overseas so we have to take that into account. There are still a number of things that aren’t related to exchange rates – such as the Govt cost of living, house prices etc that are mostly Australia-centric.

      Mr DDU

      Reply
  6. Strong Money Australia

    Inflation is super interesting. I take the unpopular view that most inflation is actually optional. As the price of many things increases, we change change our buying decisions to reflect that.
    The numbers I’ve seen suggest that the true cost of actual ‘necessities’ has decreased over time relative to wages. But our opinion on what ‘necessities’ are tends to expand, the more money we have.
    Our expenses are lower now than they were 10 years ago, and I expect that to continue as we have a few ideas on ways to optimise further without actually dropping standard of living.

    Looking forward to seeing this study evolve over time, good work guys 🙂

    Reply
    1. Dividends Down Under Post author

      I can understand where you’re coming from with that POV SMA. In some ways our expenses are a lot less and as a % are coming further and further down (even if we spend a little more than we did a couple of years ago). I think it goes to show that things that are getting more expensive (eg Home Tech) doesn’t help – if you keep using the same type of product it will just keep getting cheaper.

      Mr DDU

      Reply
  7. J @ Hey, It's Just Money!

    Thanks for this update, guys. Great stuff! I guess you know how we fee about this, particularly on house prices. Like everyone said, it will be interesting to see further updates on this. Basically, you can’t quit blogging! Haha!

    Reply

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