“Australians are constantly told their real wages have risen over the past quarter century. In reality, once you account for housing, they’ve gone backwards,” said IPA Chief Economist Adam Creighton
Australia’s official inflation statistics are fundamentally flawed, dramatically understating the true rise in the cost of living and misleading policymakers and the public, according to new research from the Institute of Public Affairs.
The research finds that by excluding house prices — the single largest financial cost most households face — the Consumer Price Index (CPI) has painted a deeply misleading picture of living standards in Australia.
Adam Creighton, who published the analysis along with former CBA economist Gareth Aird, found:
- If dwelling prices were included in inflation, the CPI would have risen by up to 155 per cent since 1998, not the official 114 per cent.
- The true increase in the cost of living has therefore been up to 40 percentage points higher than officially reported.
- Once housing is properly accounted for, real wages have fallen by up to 9 per cent since the late 1990s — instead of rising.
- Even under more conservative assumptions, real wages have barely grown or declined outright over nearly three decades.
The CPI excludes house prices on the basis they are “assets” rather than consumption. But this distinction bears little resemblance to how Australians actually experience the cost of living.
“For most households, housing is not some abstract investment — it is the single biggest financial burden they will ever face,” said Mr Creighton.
“Excluding house prices from inflation is like excluding food because it can be stored. It might make sense in theory, but it is absurd in practice.”
The research constructs an alternative inflation measure that incorporates dwelling prices, replacing part of the CPI’s existing housing component. This produces dramatically higher inflation — particularly since the early 2000s, when property prices surged.
The consequences for living standards are stark.
Official figures suggest real wages have risen modestly over the past 25 years. But once housing is included, those gains disappear entirely — and are in many cases reverse.
“This helps explain the growing disconnect between what the data says and what Australians feel,” said Mr Creighton.
The research also highlights how Australia’s CPI gives relatively little weight to housing compared to other countries, and relies heavily on rents rather than purchase costs — despite most Australians aspiring to own their homes.
“This isn’t an argument that the ABS has made a mistake,” said Mr Creighton.
“But it is a reminder that the CPI is not a comprehensive measure of the cost of living — and
should never be treated as one.”
The IPA warns that continued reliance on incomplete inflation measures risks undermining public trust in economic statistics and distorting policy debates around wages, housing, and living standards.
“If policymakers continue to rely on a measure of inflation that ignores housing, they will continue to misunderstand the economy — and the pressures facing Australian households,” said Mr Creighton.
To download the IPA’s research click here.
