Inflation: Mind-blowing comparisons of past and present
Inflation is one of those words that gets tossed around a lot, and not always by people who really know what they’re talking about. We all know the basic idea that the general cost of living has increased over time – but there’s a little more to it than that.
What is inflation?
Inflation is the continual increase of prices for goods and services. Each year, inflation is represented by a percentage change. So, simply put, with an annual inflation rate of 2 per cent a pack of lollies worth $1.00 will theoretically cost $1.02 in a year.
There are a number of theories regarding the causes of inflation – excess available money, lack of accessible goods, or rising production costs – though no single theory can be universally agreed upon.
Whether or not inflation is a good thing really depends on how high it is. Generally, you can assume that a moderate, steady rate of inflation is a good thing. As inflation lowers the purchasing power of money, it encourages consumers to spend before their money’s value falls – thus putting more back into the economy and stopping it from stagnating. If inflation is too high or unstable however, money can lose its value at an unpredictable and damaging rate.
Purchasing power in 1976
So, what is there to be said for Australia’s inflation? Let’s have a look at the price of groceries in 1976. According to the Australian Bureau of Statistics, basic groceries in Australia’s capital 41 years ago cost the following:
- 900g white bread: $0.45
- 1 dozen eggs: $0.88
- 2 600ml bottles of milk: $0.40
All together, that’s three staple items for just under 2 dollars!
Groceries weren’t the only things that you could buy for a much lower price back then – a 2006 study from Macquarie University shows the average cost of buying a home in Canberra in 1976 was $35,100.
Meanwhile, we were earning on average $210.40 a week each, according to the Australian Bureau of Statistics. Ignoring other expenses, that’s enough to buy the above groceries basket around 121 times a week!
Purchasing power in 2016
So how much more are we paying to live further on? Calculated on the Reserve Bank of Australia’s inflation calculator, here’s approximately how much that same basket cost in 2016.
- 900g white bread: $2.71
- 1 dozen eggs: $5.31
- 2 600ml bottles of milk: $2.41
So, that basket has gone from $1.73 to $10.43 – over six times the price. Of course, you may notice that those prices don’t exactly match how much you may remember paying for those products. Remember that this accounts only for inflation, not for any other factors that can affect prices.
For example, the average price of a home in Canberra in 1970, adjusted for inflation, would be $211,765.15 – well below the actual median price of $620,000 (according a CoreLogic July 2016 report). Despite the median weekly earnings in Canberra being $1830, it would still take almost double the time to save for an average home now, than it would have in 1976 – ignoring expenses. Fortunately, breaks in the market make buying your first home a much more achievable goal.
While inflation controls the purchasing power of your money, fluctuating markets can push things out of your reach. When trying to save and build security around yourself and your community, it pays to have a bank that cares about you. And who better to care about you than yourself?
Beyond Bank is a customer-owned bank, meaning profits are funnelled directly back into providing fair interest rates and fees for you. Get in touch to join Australia’s smartest bankers today.