Recently I wrote two articles highlighting the fact that the headline Consumer Price Inflation (CPI) rate is just an averaging of spending patterns across all households, and it glosses over huge differences in inflation rates experienced by different households due to their different spending patterns:
And
The second article noted that inflation for ‘housing’ costs were higher than overall CPI inflation. Today’s chart shows inflation rates for the main components of housing costs since 2000:
As in the charts in the first two articles, overall average CPI inflation rate (3.0% pa average since 2000) is the thick black line running through the middle of the charts.
Overall Housing cost inflation is the thick brown line. This has averaged 4.0% pa over the period – ie 1.0% ABOVE CPI inflation, and clearly accelerating since the ultra-loose monetary and fiscal policies that started with the Covid lockdowns.
Real causes of housing inflation
Inflation for new dwelling construction costs is running higher than CPI at 4.0% per year. But that is not the main problem with housing costs. The real problem is rapidly rising costs of UTILITIES.
At the top of the chart - gas and electricity prices have had the highest inflation rates of more than 5% per year. On average across Australia, gas and electricity prices have more than QUADRUPLED since 2000, whereas the overall CPI spending basket, and also Rents, have merely doubled.
Note that gas and electricity prices already had the HIGHEST inflation rates BEFORE the Russia/Ukraine war and US/Iran war. So government can’t blame foreign wars for their inflation problem, as I pointed out here -
· Iran war hands politicians another free ticket to blame oil prices for inflation & rate hikes (14-Mar-2026)
Don’t forget that Australia is the largest EXPORTER of energy in the world (apart from the oil states) – with our coal and gas export customers paying LOWER prices for our energy than we pay here at home. Japan actually re-exports surplus cheap gas it buys from Australia, to Taiwan and South Korea at a profit (to Japan!)
Rental inflation relatively modest
The surprising thing is that inflation in Rents (think red line) has been 3.1% pa, just a fraction above overall CPI inflation but well below inflation for utilities costs.
Note that this chart is based on data to March 2026, ie BEFORE the federal government’s recent tax attacks on property investors, which are now starting to push up rents. I will update this chart in a few months to highlight this new surge in rents – which were entirely predictable to everyone except Labor boffins.
But Renters already have highest inflation
While rents have grown by no more than overall CPI inflation, renters tend to be lower income earners and/or welfare recipients, spend more of their income on high inflation items like utilities and food, and have less spare cash to spend on lower inflation items like cars, appliances, furniture and tech/gadgets.
Each State has different laws concerning what utility costs landlords can pass on to tenants, but it is clear that renters suffer the highest overall price inflation – refer to the first article on inflation by household type.
State Tax grab
State property taxes (red dotted line) have risen by 250% or 4.9% per year since 2000 – well above CPI, especially since Covid. This reflects the relentless tax grab by State governments to fund their out-of-control spending sprees.
Government the main problem
The bottom line is that the main problem with housing inflation is GOVERNMENT. The highest inflation items are those directly or indirectly controlled by governments – utilities, property taxes, construction (State taxes, government supply restrictions, centralised wage rises), and rents (tax policies on rental housing investment, government supply constraints).
Some things get cheaper over time
Meanwhile, at the bottom of the chart we can see that physical items like major household appliances, small appliances, furniture, audio-visual gear, computers, phones and other tech gadgets have FALLEN in price (ie negative inflation) over the same period.
The key difference is that these types of goods with low or negative inflation rates are almost all imported from lower wage countries, whereas the items on the upper part of the chart are services provided by Australians, where higher wages feed into higher prices and inflation.
For the importance of understanding your own personal inflation rate based on your spending pattern, and the implications for your long-term investment strategy and retirement planning, refer to the two articles above.
· What's your Number? Part 1: 'How much do I need to retire?', 'How much can I afford to spend?' (10 May 2024)
· 'What's your Number? Part 2: 17 key factors driving 'How much do I need' & 'How much can I spend?' (14 May 2024)
· How to not run out of money in retirement - 4 big problems with relying on ‘life expectancy’ tables (6 June 2024)
The power of compounding
Differences in annual inflation rates for different households may appear small and unimportant, but the power of compounding magnifies even very small annual differences into very large differences in wealth and living standards over long periods like 30 years of retirement.
It is now tax season in Australia, an ideal time to get to know your own expense inflation and how it impacts your long-term investment planning and strategies.
Talk to your adviser about your own ‘personal inflation rate’ and whether you have the right long-term retirement portfolio and strategy given your personal inflation rate, and whether it is consistent with your views on the balance between spending it during your lifetime versus preserving it for the next generation.
Disclaimer
I have owned several residential investment properties in Sydney and SE Qld at various times over the past 40 years through different tax environments. Some negatively geared and some bought with cash. Currently own none.
Some further reading on inflation and implications for investors
· Where are you on the inflation pyramid? Inflation differences by household type (26-Jun-2026)
· What’s your personal inflation rate? And how it affects your investment strategy & retirement planning (14-Jul-2026)
· The Low Inflation era of great returns is over. Investing just got a whole lot harder! (16 Apr 2024)
· Australia’s highest cash rate in the world just got even higher – and the job’s not done yet! (5-May-2026)
· Inflation BIG Picture: Boomers got rich by lucky timing. Next Gen to get higher inflation & rates (25-May-2026)
· How the RBA scores on its inflation goal? Somewhere between 3 and 10 out of 10. Overall I give it 8 out of 10. Why so high? (6-Feb-2026)
· Iran war hands politicians another free ticket to blame oil prices for inflation & rate hikes (14-Mar-2026)
‘Till next time – happy investing and stay healthy!
Visit my web site for hundreds of original articles on a wide range of topics for advisers, portfolio managers, and serious long-term investors.
https://www.owenanalytics.com.au/
· All completely free of charge. Free of conflicts. Free of ‘ai’.
· All original research and analysis.
· No ads, No marketing material, No sponsored material at all.
· Not ‘monetised’ in any way. No ‘revenue model’.
· Newsletter cost-free and conflict-free.
· Guaranteed No ‘hot stocks’, No ‘hot funds’, No ‘hot tips’.
· Guaranteed No ‘ai’. All human.
Enjoy!