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The latest data on Selective Living Cost Indexes (LCIs) released by the Australian Bureau of Statistics has revealed that employee households recorded the highest quarterly and annual rises in living costs due to increases in mortgage interest charges.
According to the ABS, living costs for employee households rose 6.9 per cent in the year to December 2023, however, this was down from a peak of 9.6 per cent in the June 2023 quarter.
On a quarterly basis, employee households recorded one of the strongest rises of all household types (tied with other government transfer recipient households) with an increase of 1.1 per cent in the December quarter.
Mortgage interest charges were the most significant contributor to the rise in living costs on both an annual and quarterly basis for employee households.
The data revealed that mortgage interest charges make up a higher proportion of expenditure for employee households, with mortgage interest charges rising by 5.4 per cent in the December 2023 quarter, down from the 9.3 per cent recorded in the September 2023 quarter.
ABS head of prices statistics Michelle Marquardt said that mortgage interest charges rose 40.3 per cent annually, down from the peak of 91.6 per cent in the 12 months to June 2023.
“While the Reserve Bank of Australia has implemented fewer cash rate increases in recent months, previous interest rate increases and the rollover of some expired fixed-rate to higher-rate variable mortgages continued to contribute to rises,” Ms Marquardt said.
“Increases in annual living costs ranged from 4.0 per cent to 6.9 per cent depending on the expenditure patterns of the different household types, compared to a rise of 4.1 per cent in the Consumer Price Index (CPI) in the December 2023 quarter.”
The ABS noted that the main difference between the LCIs and the CPI is that the LCI includes mortgage interest charges instead of the cost of building new dwellings.
This data came as the Reserve Bank of Australia (RBA) revealed in its most recent Statement on Monetary Policy (SoMP) a “significant rise” in household debt repayments since the beginning of the monetary policy tightening cycle in May 2022.
The RBA flagged that interest repayments on household debt will continue to rise throughout the year as more fixed-rate mortgages continue to roll off onto higher rates.
According to the RBA, total interest repayments are projected to increase to around 8 per cent of household disposable income by the end of 2024 to sit slightly below the 2010–11 peak when the cash rate was 4.75 per cent.
Additionally, the central bank stated that total scheduled payments (interest plus scheduled principal) for mortgages reached approximately 10 per cent of household disposable income in the December quarter, a record high according to the RBA.
[RELATED: Mortgage repayments “still rising”: RBA]
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