On Monday, RBA deputy governor Andrew Hauser gave a speech that included the following chart on consumer spending by age cohort:
The chart showed that younger Australians aged under 35 have cut their spending hard in response to the RBA’s monetary tightening.
By contrast, Australians aged over 60, who are more likely to own their homes outright and have benefited from the boom in asset values, have ramped up their spending.
According to Hauser:
“Households fortunate enough to have accumulated assets in recent years may choose to spend rather more than past relationships suggest. Aggregate net wealth in the household sector has increased by 58% – much more than incomes. That could pose upside risks to consumption”.
“At the same time, other households, particularly the young, have been forced to cut their spending back sharply as real incomes have fallen”.
Tarric Brooker’s latest Avid Commentator report shows that the collapse in real consumption of Australians aged under 35 is not just a recent phenomena.
Their real consumption was lower in 2021–22 than it was in 2003–04:
The next chart by Brooker, which presents the real consumption data in bar chart form, tells the same story:
Decades of inequitable policies, especially those surrounding taxation, housing, and immigration, have skewed the economic playing field away from the young to the old.
The above data also highlights how the RBA’s “blunt” tool of interest rates has a disproportionate impact on Australians with mortgages while having minimal impact on older, wealthier Australians who own their homes outright, and are spending freely.
It also shows why we need our governments to assist the RBA in its inflation fight.
The RBA has only one blunt tool at its disposal, whereas our governments have many tools at their disposal to create a fairer and less inflationary economy.
