Over the year to December, annual living costs rose for every household type, increasing between 2.3 per cent and 4.2 per cent. While the overall pace of growth has moderated, the distribution of these increases reveals clear economic winners and losers.
Households whose primary income comes from government payments experienced the steepest rise in living costs, with increases of at least 4 per cent over the year. These households were particularly exposed to higher energy prices. As electricity rebates were gradually withdrawn throughout the year, out-of-pocket energy expenses rose sharply, placing disproportionate pressure on fixed or limited incomes.
By contrast, employee households recorded the smallest increase in living costs, at around 2.3 per cent annually. This relief was largely due to falling mortgage interest charges across much of the year, following multiple interest rate cuts by the Reserve Bank of Australia in February, March and August. For wage-earning households, the past year delivered a comparatively mild cost-of-living environment.
The data also shows a slowdown in the quarterly increase in living costs during the December quarter compared with the September quarter. Lower electricity and health-related expenses helped offset rises in other categories. Government interventions played a role in this moderation, including the extension of energy bill relief payments and reduced costs for pharmaceuticals and medical services.
Health costs declined across all household types during the quarter. This was driven by more households reaching the Pharmaceutical Benefits Scheme safety net and the expansion of bulk billing incentives. These measures reduced out-of-pocket expenses, offering temporary relief to households managing ongoing medical needs. Under current settings, general Medicare cardholders reach the safety net after spending $1,748.20 on PBS-listed medicines in 2026. Pensioners and concession card holders face a much lower threshold of $277.20 before qualifying for free prescriptions.
The outlook for living costs remains uncertain. The federal government has confirmed that electricity subsidies will not be extended into 2026. This raises the prospect of renewed pressure on household budgets, particularly for those most sensitive to energy price movements.
Monetary policy is also shifting. The Reserve Bank has recently lifted the cash rate by 0.25 percentage points to 3.85 per cent, responding to inflation rising to 3.8 per cent over the year and underlying inflation edging higher. While the immediate impact on mortgage holders may be limited, further rate increases would likely reverse some of the cost-of-living relief employee households have experienced. If inflation remains elevated, higher interest rates could once again become a major driver of household living costs across the economy.
Contact Accountancy Insurance
We would love to hear from you.
About Accountancy Insurance
Thousands of accounting firms offer our tax audit insurance solution, Audit Shield to their clients.
Find out why.