Peter Lyons: Cost of living getting tougher for Mr Median Kiwi

I have an uneasy feeling that it is getting harder to pay the essential bills. Photo / Janna Dixon

I have always aspired to the median. Anything else might require considerable effort. Sometimes I surprise myself by actually achieving the median. I am updating an economics textbook. In the process I have been reviewing key statistics relating to the New Zealand economy. I stumbled on the realisation my annual income as a part time teacher is almost exactly the national median income. I am in the middle. Some would say I am average but that would be mean.

Being Mr Median I thought I would explore how well I am doing just to see how other middle income Kiwis are doing.

I have an uneasy feeling that it is getting harder to pay the essential bills. I checked my bank account and managed to find my pay details from seven years ago when I started this job. My take home pay has gone up by $30 a week over this period. I realise why I am struggling to maintain my extravagant lifestyle.

Pay rises for most workers are minimal in this era of ultra-low inflation. The headline inflation rate this year is tipped to be around 0.4 per cent. Most workers are unlikely to gain pay rises much higher than this figure. This inflation rate measures the overall price rises for a basket of goods and services purchased by the average household. But there is a further story behind this bald statistic. It may explain why many average New Zealanders are finding it harder to pay for the essentials these days.

Over the past seven years, the overall inflation rate has been 11 per cent. Wages have increased by 19 per cent. This suggests that the average worker should be able to buy about 8 per cent more stuff with their income.

But in coming up with an overall inflation figure, the Department of Statistics measures a range of goods and services purchased by an average household. Some types of goods and services have gone up enormously over the past seven years. Other types have come down in price over this period. The overall inflation rate is a weighted average of these changes.

The problem seems to be that the items that have gone up the most over the past seven years are the essential items that most people must pay for. Peoples' unease about their ability to pay the bills may be justified. Incomes are not keeping up with increases in the prices of many essential items.

The items that have gone up the most over the past seven years are the essential items that most people must pay for.

Over the past seven years, headline inflation has been 11 per cent. Food prices have gone up 12 per cent. The cost of housing has gone up a whopping 38 per cent compared to the increase of 19 per cent in wages. Housing costs include rents and the costs of building a new house excluding land. The cost of paying for a roof over your head has far outstripped the growth in average incomes.

Over the past seven years, the cost of household utilities has risen by 25 per cent which has also outstripped the growth in wages. Household utilities measure essential items that must be paid for. These include electricity, water, insurance and council rates.

Healthcare costs have risen by 26 per cent. This includes such essentials as doctor and dentist visits and charges for medicine. Education costs such as school fees and uniforms as well as university fees have risen by 35 per cent.

The good news is that communication costs have fallen by 24 per cent which has helped drag down the overall inflation rate. The costs of cell phone usage and internet connections have fallen significantly over this period. This is great news for healthy cave dwellers who like using WiFi.

The prices for recreation and culture have also dropped 18 per cent over the past seven years. This has helped keep the overall rate of inflation down Recreation and culture includes downloadable movies, electronics, televisions and computing equipment, games and software. The problem is that it is difficult to live under an iPad.

Sadly, the cost of being an unhealthy middle-aged hedonist has rocketed over the past seven years. Alcohol and tobacco have risen in price by a staggering 40 per cent over this period. Bad habits are becoming exorbitant to maintain. An average income earner who likes living indoors with heating and has a penchant for booze and cigarettes must be finding it very tough these days.

The growing unease that many people feel about their ability to pay the bills may be justified. The headline inflation rate paints a benign picture of price rises but disguises the fact increases in the prices of many essentials have outstripped pay rises for many New Zealanders.

• Peter Lyons teaches economics at St Peter's College in Epsom and has written several economics texts.