Cost of living getting you down? How you are going to fare this year

It can be difficult to keep track of movements in the Australian and global economy let alone figuring out how they might affect you.

The BusinessDay reporting team have put together this list to explain how your big expenses might be affected by some of the big forces in the world today.

Staple foods such as cheese should decrease in value.
Staple foods such as cheese should decrease in value.  Photo: Richard Cornish


First up, you have to eat so what's happening with food. China's economic growth may be slowing, but its burgeoning middle class' hunger for western style food rages unabated

All but two of the 56 high earners paid no income tax at all.
All but two of the 56 high earners paid no income tax at all. Photo: Jessica Shapiro

Commonwealth Bank anticipates Asia's increasing affluence will continue to put pressure on Australian food products which are also sold into export markets.

"There is this huge population to the north of Australia whose diets are changing. It's definitely a medium-term trend," said Commonwealth Bank senior economist Michael Workman.


"It applies not only to the meats area but a lot of the other value added food items around wine and juices, and what we've seen around dairy and baby products is quite extraordinary.

"So it looks like food prices, particularly some of the fresh food products that are involved in export markets, will continue to rise for domestic consumers."



Infant formula maker Bellamy's, which is popular brand in China, increased the prices of its products late last year. But the phenomenon doesn't apply to all food exports.

But staples could be cheaper. For example NAB is expecting global prices of bulk dairy products to remain weak for much of the year. China has stepped out of the global dairy market in the past 18 months while it ran down inventories of milk powder, triggering a halving of prices for key dairy commodities.

At the same time it has increased its domestic supply of bulk wholemilk powder.

"We think they [China] will get back into the market a bit but I don't see the upside of that 2014 binge on global markets," said Nab agribusiness economist Phin Ziebell.


The falling price of oil, China's economic slowdown and US interest rate rises lifting the greenback are dominant themes in the currency market this year.

All of that adds up to a pretty weak Australian dollar and that means more expensive imports, more on that in a minute, but if you're looking for a holiday then where should you go?

"If the Chinese renminbi is to depreciate significantly this year like many expect, this should help the Aussie regain strength against the Singapore dollar and Thai baht, making them holiday destinations to consider later this year," ThinkForex senior market analyst Matt Simpson said.

Fans of colder climes should consider Russia. The ruble is at an all time low.


Another unavoidable cost is keeping yourself clothed.

Retailers have foreshadowed big price increases for next summer's fashion as the soft Australian dollar drives up the cost of imported apparel.

Prices could rise by as much as 15 per cent, reflecting the rapid decline of the Australian dollar in the past year and the unwinding of hedging contracts from the middle of the year.

Many retailers have resisted price increases for fear of hurting their sales, but 2016 is crunch year according to analysts and businesses either need to find significant savings or mark up their stock.


With oil prices at their lowest in over a decade, motorists could be forgiven for wondering why the price of petrol hasn't fallen further.

NRMA, the motorists organisation, estimates the price of petrol was around $1.04 a litre in Sydney late this week, the low in the present pricing cycle, which runs for two to four weeks, and down from around $1.20 a week ago.

"Now is the time to fill-up; further falls will be minimal," NRMA spokesman Peter Khoury said of the outlook over the next few weeks, after which prices may edge higher before declining again. Although sharp-eyed motorists found discounters with prices on Friday at around 95c a litre.

World oil prices haven fallen but at the bowser the impact has been blunted by the weak Australian dollar which offsets part of that decline.

So while price at the bowser is back where it was a year ago, the Australian dollar has fallen to US70c from US85c over the same time, absorbing part of oil's price decline.

From early February the fuel excise levy of 39.2c a litre of petrol is to rise by the rate of inflation, likely to be around 0.5c a litre, absorbing another portion of the oil price decline.


Falling fuel costs are also good for airlines, but the cost of your airline ticket this year will depend very much on where you are going.

Heading overseas looks to be getting cheaper. Flight Centre analysis found the lowest discount fares on popular holiday routes are on average 14 per cent cheaper than last year.

CAPA Centre for Aviation executive director Peter Harbison said increases in capacity and the impact of a slower economy on demand were leading to reductions in international airfares.

However, domestic travellers shouldn't expect lower fares as the airlines limit capacity additions in order to maintain pricing power. Analysts believe average fares could rise by around 2 to 3 per cent.


Cars should get cheaper, particularly as the price of steel plummets, right?

If only it were that simple. Car production is a complex beast, but if anything they should become more expensive, particularly after the last locally built vehicles from Toyota, Holden and Ford roll off the production lines in the next two years.

But Commonwealth Bank senior economist Michael Workman said an all imported market will start to put upward pressure on prices, considering the Australian dollar has fallen about 14 per cent against the US currency since May.

"The lower dollar offsets the issue [of lower steel prices] because by the end of this year or early next year there won't be any more cars produced locally here," Mr Workman said.

"We will have totally imported vehicles and currency fluctuations are very, very important to the way their prices move. Since most are priced in US dollars, yen or euro, then you would think there would be pressure on their prices to rise."

But Mr Workman said supply and demand as well as marketing campaigns from the big car makers skewed currency and commodity price volatility.

"Overseas conditions, like oversupply of motor vehicles, does affect the ability of domestic sellers to put prices up.

"In a long-term sense, the relative price of a vehicle has fallen by 30 per cent compared with the inflation rate over the past 15 years."

So with a wild currency and weaker commodity prices, the price of cars could very well remain unchanged.