There are three Australia’s right now.
There are roughly one-third of Australians who are tenants suffering from double-digit rental increases, while at the same time are experiencing the sharpest fall in real wages in this nation’s history.
Then there are the roughly one-third of Australians who are mortgage holders that are being hammered by the most aggressive rise in interest rates in this nation’s history, while also suffering from falling real wages.
This group has seen their average variable mortgage repayments increase by around one half, shaving tens of thousands of dollars in annual disposable income from their budgets.
Finally, there are the lucky one-third of households – mostly older Australians – that own their homes outright who are unaffected by the RBA’s aggressive interest rate hikes, nor the rental hyperinflation.
These older Australians accumulated huge stockpiles of savings over the pandemic (chart from UBS):
Some are even benefitting from the hyper-inflation in rents given they dominate the ownership of investment properties (many without leverage).
Older Australians on the aged pension also have their incomes indexed to CPI (unlike workers’ wages), meaning they are largely protected from the inflation shock.
According to an analysis of 7 million CBA customers’ purchasing habits, those aged under 35 increased their spending by only 3.4% in the year to March, which was less than half the rate of inflation and indicates that the average young person is buying less goods and services.
The age group most under pressure was 25 to 29-year-olds, whose spending remained nearly flat in value over the previous year despite a 7% increase in prices.
By contrast, spending among the over 55s climbed at a faster rate than inflation over the past year, with CBA customers over the age of 75 increasing their spending by approximately 13%.
All growth figures are provided per person, so they are not exaggerated by the current migrant surge.
CBA’s data also showed that the substantial increase in spending at cafés and restaurants reported in official Australian Bureau of Statistics data has been driven by older cohorts, who are spending 18% more on dining out than the previous year, compared to a 7.1% increase among under-35s.
Therefore, the older generations are driving Australia’s household consumption and have forced the RBA to respond with higher interest rates, which is negatively impacting younger Australians.
To the baby boomers go the economic spoils!
Now watch on as they eat smashed avocado toast!
