CPI inflation and the affect on Age Pension -March 2023

How pensions will change in March

Last year the jump in the October Consumer Price Index (CPI) surprised many. The overall year-on-year (YOY) increase of 6.9% was lower than expected, and lower than the September YOY increase of 7.3%.

The main movements were in the categories of food, housing, rent, transport and holidays.

Food prices continue to increase, they are now up 8.9% for for the year for the year to October. 

The new rates are here!

On March 6 2023 the new rates were announced.  Read all about the changes in our recent article.  The current rates and rules are all summarised for you too.

Most retirees are not affected by increasing building and construction costs (new dwellings), which is a relief as they are up 20.4% for the year to October.

Rent has shown further annual increases, from 2.9% in September, to 3.5% in October, emphasising the tightness of the rental housing market.

The higher excise tax on fuel had the expected effect, with fuel showing an 11.8% annual increase in October (compared to 10.1% in September), which is still lower than the record increases witnessed earlier this year.

Holidays and travel showed an annual drop in October (3.7%) compared to increases in September (12.6%) as the travel sector is no longer experiencing peak European travel and school holiday demands.

How pensions will change in March

Last year the jump in the October Consumer Price Index (CPI) surprised many. The overall year-on-year (YOY) increase of 6.9% was lower than expected, and lower than the September YOY increase of 7.3%.

The main movements were in the categories of food, housing, rent, transport and holidays.

Food prices continue to increase, they are now up 8.9% for for the year for the year to October.

Most retirees are not affected by increasing building and construction costs (new dwellings), which is a relief as they are up 20.4% for the year to October.

Rent has shown further annual increases, from 2.9% in September, to 3.5% in October, emphasising the tightness of the rental housing market.

The higher excise tax on fuel had the expected effect, with fuel showing an 11.8% annual increase in October (compared to 10.1% in September), which is still lower than the record increases witnessed earlier this year.

Holidays and travel showed an annual drop in October (3.7%) compared to increases in September (12.6%) as the travel sector is no longer experiencing peak European travel and school holiday demands.

What’s in these numbers for retirees?

It depends where and how you spend your money. If you are renting and on a full Age Pension, life continues to be tough with food and housing taking up the lion’s share of your income. If you are building a residence, you are probably watching the prices scoot up on what seems to be a daily basis. If you are a frequent traveller, then no doubt you have noticed the steep increases in flights and accommodation. And energy bills continue to climb for all of us, but are not featuring in the biggest increases above, mainly due to subsidies.

How will the CPI influence March 2023 Age Pension increases?

As you are probably aware, the CPI is one of two factors at play. The formula for increasing the pension rates in March and September is a combination of movements in the Consumer Price Index or the Pensioner and Beneficiary Living Cost Index (PBLCI), whichever is greater. Pensions are then benchmarked against a percentage of the Male Total Average Weekly Earnings (MTAWE).

So using this data, we are able to now predict, with a strong degree of accuracy, the likely increase to the Age Pension in March 2023.

Here’s our projection

The most recent published PBLCI (end September 2022) is 6.4%. If inflation continues to end December at or near its current rate of 6.9%, then the adjustment in March 2023 will be based upon the CPI. Using the 6.9% annual CPI, less 4% already used as an adjustment in September 2022, will result in a further increase of 2.9%.

Applying a 2.9% increase to the base rate of the Age Pension would mean an extra $27.17 per fortnight for a single person and $20.48 for each member of a couple.

Whilst the CPI and the PBLCI are the dominant factors which influence movements in Age Pension rates, a new Economic Inclusion Advisory Panel which will advise the Federal Government before future May budgets on the fairness and equity of social welfare payments. It is possible that input from this advisory group will also exert upward pressure on the amount of such payments.

The actual increase

The Government has just announced that the single Age Pension payment will rise by $34.70 and the couple’s by $26.10 each per fortnight, a little more than we predicted a three months ago which is great for those on the Age Pension.

What’s your situation?

Are you feeling the pinch as prices rise?

Or, like some economists, do you believe we’ve already scaled the peak and things will settle from now on?

The new rates are here!

On March 6 2023 the new rates were announced.  Read all about the changes in our recent article.  The current rates and rules are all summarised for you too.