The cost of living is going up and up. How do Australians respond? We have a good time.
Airfares are much more expensive than they used to be. We travel less and ultimately have more money left in our pockets.
Housing is still very much out of reach for many young people. No mortgage costs? That means money in your pocket right now.
We work from home more often than before the pandemic. That’s not really because we are trying to avoid getting COVID (again) – after all, sporting arenas, clubs, restaurants and all kind of events are crowded. We just want to avoid the nuisance of commuting. Cutting out the commute saves costs and leaves us with more money in our pockets.
House prices went through the roof. Even households that aren’t considering selling are now richer on paper. This leads Australians to act like they actually have more money. Economists call this the “wealth effect”. When your house or portfolio goes up in value, you spend more money. This is how the housing boom of the last few years fuelled discretionary spending.
We are now spending 14 per cent more on groceries and 25 per cent more on eating out (or ordering in) than we did before the pandemic.
The increased spending on dining out in particular is interesting. From February 2020 to April 2020, we halved our spending on restaurants and food delivery. The latest recovery from August 2021 until today saw us increasing our spending by 54 per cent. We now spend $500 million more each month on eating out and ordering in.
Food is big business and Australians laugh in the face of inflation (with a full mouth) by still eating out at high rates.
In the United States the cost differential between eating out and eating in has been shifting in favour of restaurants.
In the 12 months to July 2022, consumer prices at grocery stores increased by 13 per cent. Over the same period, restaurants have only seen an increase of eight per cent.
That doesn’t mean going to a restaurant is necessarily cheaper than preparing a meal at home. But once you factor in your own labour cost in preparing your home-cooked meal – and assume that eating out doesn’t mean an expensive hipster restaurant but rather a discount restaurant chain – we can see how eating out might be the more economical option.
Historically, each family cooking for itself is a pretty recent idea anyway. The rich hired permanent staff to do the cooking for them, but poor people prepared meals communally. This kept fuel costs (wood, coal, gas) down, allowed for economies of scale (producing more food with cheaper ingredients), and used less labour. The last part was crucial.
Family members were economically more productive when they were in the fields, in the workshops, or in the factories. I live near a fantastic Banh Mi place. I’d struggle to reproduce their crispy pork roll at home for $10 (plus mine wouldn’t taste nearly as nice).
While a fair bit of the increase in spending is driven by inflation, it shows our willingness to put ourselves out there again. It shows the Australian spirit of getting on with things, with wanting to enjoy life.
Maybe eating out has also become socially more important. As we spend more time working from home, we crave some socialising. After a whole day working from home, we might prefer to go to a restaurant rather than entertaining friends at our home.
Will these habits change anytime soon? Not if we can trust the trends of the spending data.
We are spending more than ever on furniture, electronics, hardware, and gardening supplies. We are investing in our homes.
We still have over a decade’s worth of Millennials waiting to join the family-formation stage of the life cycle. That’s when we invest in our homes, that’s when working from home becomes more appealing, that’s when ordering some food is one of the great pleasures in life.
Australians will continue to spend big on lifestyle. We always have, we always will.
The biggest risk here is inflation getting out of hand. Once our lifestyle spending buys us fewer Banh Mis or less expensive sofas we might re-think our high consumption lifestyle habits. This would seriously hurt our lifestyle obsessed economy.
