Tony Alexander surveys households for tips on how to fight inflation

Monday, 17 January 2022

A strong jobs market means more inflation-pressured households think they can negotiate pay-rises to preserve their standards of living than in previous inflation spikes, according to independent economist Tony Alexander.

Alexander surveyed the 25,000​ subscribers to his economics newsletters to compile an ultimate tip-sheet for households looking for ways to cope with spiking inflation.

“Usually wages grow 2​ per cent more than our cost of living each year,” Alexander said. “Now, the opposite is happening, and a lot of people, faced with rapidly rising prices for most of the things we buy, will be thinking about how to make savings and budget better.”

But while his subscribers had no shortage of traditional cost-cutting tips like refraining from buying barista coffees or posh lunches, and some novel suggestions like having a “cheap week” once a month, many people offered more positive inflation-beating strategies.

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“Usually in the past when the cost of living went through the roof, unemployment was high, the economy tanked,” Alexander said.

Many of his subscribers felt workers had a good shot at negotiating themselves an inflation-busting pay rise, he said.

“That never really came through in previous high inflation times.”

One subscriber suggested people should be loyal to themselves, not the employer and look for a new job opportunities to secure a pay rise.

The other positive strategy that Alexander said was not advocated in previous periods of high inflation was for people to draw money out of the bank, and put it into higher-risk, potentially higher-return investments.

This has become easier thanks to online investment platforms like Sharesies and Hatch.

Another subscriber said “those on fixed incomes with money in the bank at less than 1.5 per cent could invest in higher yielding shares and funds”.

Another advocated for investing in an electric vehicle to get a return on lower maintenance and fuel costs.

“We’ve switched to an electric car, and we’ve switched to an EV electric plan, and incidentally put a timer on our hot water cylinder too,” the subscriber said. “The savings from doing this are $65 per month in electricity, and simply not buying any petrol at all, which is huge.”

Another “investment” for bringing down costs was to buy a big chest freezer, and become a bargain-hunter.

“Chase the specials on poultry which can be ridiculously cheap,” said one.

Traditional cost-cutting suggestions involved budgeting, paring back lifestyle, cutting discretionary spending, and doing everything for yourself, from mowing the lawn, to preparing all your own food and coffee.

They also included shopping around for deals on all big-ticket services like power, insurance and telecoms.

One even suggested some people might need to shop around for cheaper friends.

“If frugality is hard because of your social milieu, you can either change your friends or tell them that you are doing it for the planet,” said one. “Then go and buy your clothes from op shops.”

Instead of living a more pinched existence every week, one man suggested having a “cheap” week once a month to bring costs down without making life a drag.

“Something we implemented several years ago was to have a ‘cheap week’, where we basically commit to spending a quarter of our regular amount on groceries,” he said.

Meals could get boring, but “the excitement of spending $100 rather the $400 is huge.”

Others suggested more radical forms of food cost-cutting, like going vegetarian.

“Went vegetarian when the kids were young and money was tight,” one said. “Do things that later on in life people will comment to you that you are lucky.”

ANZ economist Finn Robinson​ said long-term data showed lower-income households had the hardest time coping with inflation.

They have historically been hit on two fronts, Robinson said.

“The 20 ​per cent of households with the lowest incomes have tended to see the largest living cost increases, while the richest 20 per cent ​have seen the smallest increases,” he said.

“Higher-income households may be able to more easily absorb price rises by simply cutting back on non-essential spending, but for poorer households, there’s simply not much fat to trim.”

Adding up the numbers, 63.5​ per cent of expenditure went towards food, housing, and transport for lower-income households, compared with 51.2 ​per cent for the highest earners, he said.

It could take some time, but wages would adjust, Robinson said.

“The tight labour market will give workers more bargaining power to lock in cost of living adjustments. Our forecasts for inflation and wages imply respectable real wage growth from around the second half of 2022.”