FAR from being squeezed, working people are better off than ever, according to the latest figures, with lower costs from interest rates counteracting the higher costs imposed by the carbon tax.

Average wages climbed 3.7 per cent in the past year (3.9 per cent in the private sector, 3.3 per cent in the public sector). But the living costs faced by working households climbed only 1 per cent in the year to September, an increase that took account of all of the price rises that flowed from the carbon tax.

The stunningly low cost-of-living increase - half the official inflation rate - was because the Australian Bureau of Statistics' cost-of-living measure incorporated household mortgage interest costs which slid 6.7 per cent over the year to September and 2.5 per cent in the past three months. It also gave a high weight to motoring costs, which slid 0.8 per cent in the past three months as a result of lower petrol prices.

The 1 per cent annual rise in living costs was one of the lowest on record and had only been bettered on other occasions when interest rates had been falling.

Other households for whom mortgage charges and petrol prices were less important were hit harder.

In Parliament, the Climate Change Minister, Greg Combet, ridiculed a series of "notorious" warnings about the carbon tax from the Opposition Leader, Tony Abbott.

The ABS said the living costs faced by pensioners and households relying on Newstart climbed 2 per cent. Self-funded retirees' costs rose 1.5 per cent.

Other figures showed private sector house building approvals were up 1.2 per cent in September. Approvals for renovations surged 11.5 per cent.

The BT Financial Group chief economist, Chris Caton, said the news was "not so much a sign of strength as a sign of hope". Building approvals were volatile and they did not respond predictably to interest rate cuts.

The Reserve Bank has cut interest rates 1.50 percentage points over the past year.