A report by the St Vincent de Paul Society has found more people are at risk of falling into poverty due to the rising cost of living for low-income households.
The report says price rises for essential goods and services, like food and electricity, are pushing poorer households to spend more of their income on non-discretionary items and forcing them to delay spending on health and education.
"Lower income households are spending proportionally more of their money on non-discretionary, essential items," said St Vincent de Paul Society manager of policy and research Gavin Dufty.
"The rate of change in the cost of those essential items has gone up quite significantly above the underlying inflation rate.
"The underlying story is if it is non-discretionary and it is made locally, that is in Australia, those costs have gone up quite a lot.
"Generally, if it is discretionary, things like say electrical appliances and clothing, all those sorts of things, they tend to be made overseas and they generally haven't risen as much in price and often the cost increase has been below the inflation rate."
Conversely, Mr Dufty, who co-authored the report investigating changing cost pressures on different household groups, says wealthier households are benefiting from cheaper prices for non-essential items, like furniture and cars.
"So low-income households or people with not much discretionary income, they are spending it all on essentials with nothing left over to take advantage of the strong Aussie dollar to buy the flat-screen TVs, etc," he said.
"Whereas those with discretionary income can afford all the cost increases in the essentials and then can take advantage of the strong Aussie dollar and start to increase their wealth by purchasing those other things."
Mr Dufty says not only does that mean that lower income households are not able to build their wealth, but short-term spending decisions by poorer households are having worrying longer-term implications.
"We've had sustained economic issues since the GFC, so what has happened is lower income households have used up their financial shock absorbers already," he said.
"So now they have got nothing left in the bank, and as a result of that they are making decisions and you can see it in the data where they are under-consuming in particular areas, for example under-consuming in health.
"Now if they are under-consuming in health, it means they are not going to the doctors today because they are putting food on the table, but that has long-term implications for those households.
"They are setting themselves up for longitudinal poverty or poverty in the future because of decisions that are being made now."
Calculations in question
Professor Mark Wooden from the Melbourne Institute of Applied Economic and Social Research at the University of Melbourne says the report highlights problems with calculating the cost of living based on inflation.
"I mean the clear message is that the cost of living is not well calibrated with the consumer price index (CPI)," he said.
"Cost of living is rising much faster than the CPI, so that means anybody whose incomes are tied to CPI is going to be struggling and increasingly so.
He says there are two main groups whose incomes are tied to the CPI.
"There are those people sort of on pensions, old age pension, disability support pension - they're tied to average weekly male earnings," he said.
"Whereas the people on allowances and pretty much everything else - the Newstart Allowance, people on unemployment benefits - they're linked to the CPI.
"Those two series have been moving further and further apart, and earnings have consistently been rising faster than the CPI for most of last decade, and so as a consequence as people on unemployment benefits are just falling further and further behind, and according to these figures their standard of living, even in absolute terms, must be falling."
The report calls for all levels of government to review welfare payments and concessions.