Impact on spending and income
Separate data from CBA shows that younger Australians have reduced their spending since the RBA started hiking rates, while older Australians have continued spending as usual. This is evidence of the differing impact of interest rate hikes on different Australian cohorts. There are roughly three groups in the Australian economy:
- Tenants who are facing double-digit rental hikes and the greatest decline in real incomes in history
- Homeowners with mortgages who are experiencing the most aggressive rise in interest rates in history and declining real earnings
- Households, mostly comprising older Australians, who own homes outright and are not affected by the RBA’s aggressive interest rate hikes or rental hyperinflation
The third group, which benefits from higher interest savings accumulated over the pandemic and investments that benefit from the surge in rents, has boosted household expenditure. As a result, the RBA responded with higher interest rates, which are affecting younger Australians, setting up a conflict between generations.
Conclusion
The effects of RBA’s aggressive interest rate hikes are disproportionately felt by younger Australians who are struggling to enter the property market or pay rising rents. In contrast, older Australians are accruing wealth as a result of the RBA’s policy. The disparity in interest rate impact between age groups threatens to cause conflict between the younger and older generations in Australia. Policymakers must consider the needs of all age cohorts to ensure a fair and prosperous economy for everyone.
