Dr Sam Wylie

So things that are really important, like health care and transport and housing, the really big ticket parts of what you spend money on, they have a lot of weight in forming it.

And things that are smaller, like sporting equipment

and restaurant meals and Uber rides.

They're important in their own right, I know, but they're a lot smaller than the other ones that I mentioned.

So they enter the index with a smaller weight.

And so the Australian Bureau of Statistics collects it all by surveying lots of households.

They create that weighted average.

They publish it every three months.

That's the cost of living.

And so going back to your question, am I surprised that that's what's on the tip of everyone's tongue and the main concern about the economy?

Well, not really, because prices are going up so much because there's been so much stimulus of the economy.

I mean, what causes prices to go up a lot here?

is what causes prices to go up a lot is that demand is growing faster than supply.

So if the amount that people want to buy of all of those things is going up faster than companies are supplying it, then there's a lot of competition for those goods and services, and it drives all of those prices up.

But there's another thing, and that's how much money there is in the economy.

And so you can imagine that the price level depends upon how much money there is in people's bank accounts and in their purses and wallets and the like.

I mean, say that the central bank, which we'll talk about later on, the Reserve Bank, say that the Reserve Bank was to increase the amount of money that everyone has by a factor of 10.

So we're going to add a zero to every note that's in your purse or wallet.

We're going to add a zero to your bank account.

then obviously the amount of money in the economy has gone up by a factor of 10 and the price of everything will go up by a factor of 10.