Giffen Goods Explained: The Economic Paradox Australians Need to Know in 2025

Economics is full of neat theories, but every now and then, reality throws a curveball. Enter the Giffen good—a rare type of product that seemingly defies the law of demand. While most goods become less popular as their prices rise, Giffen goods buck the trend: when their price goes up, so does demand. In a year of rising living costs and shifting consumer behaviour, understanding this economic oddity is more relevant for Australians than ever.

What Exactly is a Giffen Good?

The classic law of demand says that as the price of something increases, people buy less of it. But a Giffen good is an exception. Named after Scottish economist Sir Robert Giffen, these goods are typically basic necessities for which there are few substitutes. When the price rises, low-income consumers can’t afford pricier alternatives, so they end up buying even more of the higher-priced basic good, despite the cost.

• Example: In 19th-century Britain, bread was so essential for poor families that when the price rose, they had to buy more bread and cut out other foods, simply to meet their caloric needs.

• Key characteristics: Must be an inferior good (demand rises as income falls), and constitute a large part of the consumer’s budget.

While Giffen goods remain mostly a textbook curiosity, recent economic shifts mean they aren’t just an academic talking point.

Giffen Goods in the Modern Australian Economy

Australia’s cost-of-living pressures in 2024 and into 2025 have changed how households think about essential purchases. As rents, energy bills, and grocery prices surge, lower-income Australians are making tough choices. For some, staple foods like home-brand bread, rice, or pasta are taking on a Giffen-like role in the weekly shop.

• According to the ABS, food inflation remained stubbornly high through early 2025, with the price of basic staples rising faster than many luxury items.

• Charities report increased demand for low-cost carbohydrates, as families substitute away from meat, fresh produce, and branded goods.

While it’s rare to find a perfect Giffen good in the wild, the current economic climate means some products are acting more ‘Giffen-esque’ than they have in decades.

Policy Shifts and Real-World Implications in 2025

Understanding Giffen goods isn’t just an academic exercise—it’s influencing policy and business decisions:

• Welfare Adjustments: The 2025 Federal Budget saw increased food relief funding and expanded welfare payments to counter the risk of nutrition gaps as staple prices rose.

• Supermarket Strategy: Major chains have responded by freezing prices on select basics and introducing more ultra-budget lines, recognising the demand elasticity shifts among struggling households.

• Regulation and Monitoring: The ACCC has stepped up scrutiny of price gouging on staple items, wary that excessive price hikes could trigger Giffen-like consumption patterns and worsen food insecurity.

Economists are watching closely: if Giffen effects become more widespread, it could signal deepening economic stress and a need for more targeted policy intervention.

Why Giffen Goods Matter for Australians

For most people, Giffen goods are a quirky economic footnote. But in tough times, they highlight a harsh reality: when essentials become unaffordable, the least well-off can end up worse off by buying more of what harms their budget or health. Recognising the signs helps policymakers, businesses, and community groups respond more effectively to cost-of-living crises.