Leon Delaney:
Chief Economist at the Institute of Public Affairs, Adam Creighton, good afternoon.
Adam Creighton:
Thanks very much for having me.
Leon Delaney:
Well, thanks for joining us today. What you’ve done here is essentially add in the one component that is mysteriously missing from the CPI official figures, and that is the cost of paying off a mortgage. Why is that not part of the CPI?
Adam Creighton:
Yeah, look, it’s an interesting one. Basically, most CPIs around the world don’t have dwelling prices in there, so no apartment prices, no house prices. The reason for that is that they’re considered an asset and not a consumption good, even though of course most people would like to buy a home and they certainly don’t think of their home, I think, as a financial asset. So only rents are included, not the price of buying a home. But that’s why I think many people don’t believe the official figures. And so, we just put in at a very modest fraction, the growth in dwelling prices over time since 1998, just at 8.5% of the index. And when you do that, you see that our wages, real wages, which of course are adjusted for inflation, you see that they’re actually lower in 2025 than in 1998. So no wonder people are pretty angry.
Leon Delaney:
Yeah. Now there’s a couple of things there. Obviously for other countries around the world, it makes sense not to worry so much about property prices, because a lot more people are renters in most countries. It’s a part of their way of life. They don’t have the same obsession with homeownership that Australians have traditionally had. But of course here in Australia, once you buy the house, it’s not like most people can afford to stump up cash and be done with it. We’re all paying off a mortgage. And that mortgage obviously comes out of our weekly cash flow, doesn’t it?
Adam Creighton:
Yeah, look, that’s exactly right. And some people said, “Oh, well, it shouldn’t be included because it’s just a one-off purchase.”
But as you say, no, it’s not. I mean, pretty much you’re paying it for 30 years or so through your mortgage. And of course, I might add that home loan interest rates are not in the CPI either. So the prices aren’t in there, the interest rates aren’t in there, stamp duty’s not in there. Many things are not in there, and that actually surprises many people. It’s interesting that there was a period in US history, where dwelling prices were actually in the American CPI from 1953 to 1983. So there is some precedent for having prices in there, the price of houses. But the Americans took them out because in the late ’70s, their interest rates were going through the roof, their house prices were going through the roof. And frankly, the American government said, “We need to get these out of the CPI, because it’s making the figures look really bad and it’s forcing us to index our pensions and social security payments at crazy rates.” So there’s always politics in the background.
Leon Delaney:
Well, that’s right. Now, the ultimate effect here is that you’ve said that real wages have actually fallen over that period of time, since 1998. Even without taking into account house prices, real wages have been pretty well flat for quite some time now and have experienced some periods of going backwards during that last couple of decades. The ordinary everyday Aussie battler is not better off than they once were. And in fact, if you ask them, they’ll tell you they’re worse off. And your work has gone a long way towards explaining why, hasn’t it?
Adam Creighton:
Yeah, look, I think so. And actually I was shocked even if I just used the official CPI. Over that whole period, some 27 years, real wages were only up 8%, which is pretty pathetic really. And you’re quite right. They peaked in about 2022, and they’ve fallen about 10% since then, and they’re very, very slowly creeping up now, but by amounts that aren’t even noticeable. So they haven’t gone up much over 30 years and they’ve fallen recently. So I mean, to be honest, I’m shocked people aren’t kind of out in the streets about it.
Leon Delaney:
Well, absolutely. Now we do see that the Fair Work Commission is about to embark upon the process of determining the minimum wage. The federal government has provided its submission to the commission, calling for an economically sustainable increase to minimum wages that is above inflation. Now, that’s an interesting question, because the official inflation rate at the moment is 3.7%, but everybody’s expecting it to hit 5% or more in the wake of the Middle East oil crisis. So inflation could go anywhere over the next couple of months. Obviously, the Australian Chamber of Commerce and Industry wants a lower increase of 3.5%. The ACTU wants a 5% increase in the minimum wage. What’s your view on that? Should there be an increase in the minimum wage above inflation?
Adam Creighton:
Well, look, if I was making a decision, I’d probably increase it by about the official rate. But it’s a difficult question, because as I just argued, the official CPI I think is lower than what it really should be. So I do have sympathy for these people, but the economic reality is that if you increase it too much, some people will lose their jobs. I mean, you can’t force businesses to hire people, and if their payroll costs go up by more than they can afford, well, obviously they’re going to trim back. [inaudible 00:05:13]
Leon Delaney:
And the reality we’re facing though is that it looks very much like both inflation will go up and subsequently interest rates will go up further, and people are going to lose jobs in that scenario as well. And the bottom line here is that the inflation that we’re experiencing is not demand driven inflation. It’s all supply. It’s all supply. So how can we punish the battlers of the nation for something that they have no control over?
Adam Creighton:
Yes. So look, it’s a very good point. And the petrol price inflation that we’re seeing, I mean, in fairness, and I’m no great fan of the government, but that’s obviously not their fault. It’s a global issue. It’s affecting all countries, but from the reserve bank’s point of view, they’re getting pretty worried about this thing called inflation expectations, which is not the actual rate of inflation, but it’s what people think inflation is going to be over the next year. And that’s crept up quite a lot. And that worries the reserve bank greatly because they tend to be very sticky, these expectations. So once everyone thinks it’s going to be four and a half, five, that’s just what they do with their prices.
So it was interesting to hear Michelle Bullock, the governor, this week of the reserve banks say that, “Look, if it stays high, we may have to have a recession.” And the reserve bank’s very capable of bringing one on if they have to. They did that famously in the ’80s, ’90s-
Leon Delaney:
Indeed.
Adam Creighton:
… to crush inflation. And she said that.
Leon Delaney:
I would argue, of course, that they don’t have to, because the source of inflation is not driven by workers’ wages. It’s not driven by demand in the economy. I’m not buying any more petrol than I was before. In fact, I’m buying less, because I’m not driving anywhere if I don’t have to, and I’m driving more slowly just to conserve the fuel. So it’s not demand driven. Interest rate increases are not going to do anything to curb inflation. It’s just going to hurt people.
Adam Creighton:
No, look, I think that’s right. I mean, they’re certainly not demand driven in the sense of ordinary people going to the shops and buying things, that’s complete nonsense. But they are demand driven in the sense of federal spending, government spending. I mean, when state and federal governments borrow, they inject new money into the economy and that’s a lot. I mean, the federal government alone, 35 billion of borrowed money a year is injected into the economy and then you add the states in. It’s probably about double that. So they need to trim their spending and get it under control, stop borrowing so much. And then I think the inflation rate will come down. But of course, that’s very politically difficult to do. And we’ve got the May budget coming up, you’re in Canberra, you know that. This is really the only budget I think that the government has a chance to be tough, because of course, next year the election’s getting closer.
Leon Delaney:
Yeah, well, that’s exactly right. And the federal government is aware that it needs to cut spending, but it’s really struggling to find a way of doing it, isn’t it?
Adam Creighton:
Yeah. Yes, it certainly is. It’ll probably increase taxes instead.
Leon Delaney:
Well, there’s always that chance, isn’t there? Adam, thanks very much for chatting today.
Adam Creighton:
Thank you. Thanks for having me.
Leon Delaney:
Thank you. Adam Creighton, Chief Economist at the Institute of Public Affairs.
This transcript of Adam Creighton on Canberra Live 2CC from 27 March 2026 has been edited for clarity.
