The new Reserve Bank governor has suggested baby boomers are to blame for Australia’s cost of living crisis, after interest rates rose for the 13th time in 18 months.
Michele Bullock, herself a baby boomer, warned inflation would stay “high for longer” and blamed older Australians as the RBA interest rate climbed by a quarter of a percentage point to reach a 12-year high of 4.35 percent.
She did not mention her generation by name, but saw it as responsible for maintaining high inflation, with the 18 percent interest rates of 1989 now a distant memory for older post-war Australians. war.
The contrast was drawn between young and middle-aged people paying off mortgages or struggling with rising rents, and baby boomers with large savings and valuable real estate assets.
“The outlook for household consumption also remains uncertain, with many households facing painful financial difficulties, while some benefit from rising house prices, large savings reserves and interest income higher,” Ms. Bullock said.
New Reserve Bank Governor Michele Bullock has suggested baby boomers are to blame for Australia’s cost of living crisis after interest rates rose for the 13th time in 18 months.
Australian property borrowers have weathered the 13th interest rate rise in 18 months, with the Reserve Bank’s spot rate now at a 12-year high of 4.35 per cent.
This data supports data from the Australian Bureau of Statistics, which shows the cost of living for people on age pension increased by 5.3 per cent in the year to September – a slightly lower level to inflation – as workers struggled with a 9 percent increase in their daily expenses.
Ms. Bullock presided over her first rate hike as governor and chillingly hinted that more pain was to come – with the final quarter-percentage-point increase adding to the pace of monetary policy tightening the most severe since 1989.
“Inflation in Australia has passed its peak but remains too high and is proving more persistent than expected a few months ago,” she said on Tuesday afternoon.
“The latest CPI inflation data indicates that although goods price inflation has eased further, the prices of many services continue to rise rapidly.”
Australia’s big four banks were all expecting a rate hike on Melbourne Cup Day as the Consumer Price Index (CPI) rose 5.4 percent in the year to September, which represents only a slight change from the June quarter’s 6 percent annual pace.
In a worrying sign, the RBA now expects inflation to return to the peak of its 2-3% target at the end of 2025 instead of June 2025.
“Since its August meeting, the board has received updated information on inflation, the labor market, economic activity and the revised set of forecasts,” Ms. Bullock said.
She did not mention the name of her generation, but she had her sights set on the baby boomers (file image) as being responsible for maintaining high inflation, interest rates of 18 percent 1989 now being a distant memory for older post-war Australians.
“The weight of this information suggests that the risk of inflation remaining high for longer has increased.”
In a frightening sign, Ms Bullock hinted at further rate rises, despite monthly mortgage repayments rising by 68 per cent in just 18 months.
“The board remains committed to returning inflation to its target and will do what is necessary to achieve this outcome,” she said.
The Reserve Bank on Tuesday updated its forecast that inflation would fall to 3.5% by the end of 2024 and to 3% by the end of 2025.
This is a departure from his August statement on monetary policy.
“The board felt that an interest rate increase was warranted today to provide greater assurance that inflation would return to its target within a reasonable time frame,” Ms Bullock said.
Treasurer Jim Chalmers, a Generation X minister, said the latest rate hike would be difficult for borrowers.
“It’s a tough day for people with mortgages,” he said.
“We understand that Australians are already under significant pressure on their household budgets and this will further tighten the screw.”
The RBA’s first increase since June will add $99 to an average $600,000 mortgage, with the cash rate of 4.35 per cent now at its highest level since December 2011, following the last quarter of a percentage point increase from an 11-year high of 4.1. percent.
Annual repayments on a typical Australian mortgage this month will be $18,744 higher than they were at the start of May 2022, when Reserve Bank interest rates were still at a record low of 0.1% and that banks were offering mortgage rates starting with “two”. .
The final quarter of a percentage point rate rise will see the Commonwealth Bank variable rate increase to 6.69 per cent, from 6.44 per cent.
Tuesday’s increase marks the seventh Melbourne Cup Day increase in the past 20 years, with bad news also occurring in 2003, 2006, 2007, 2009, 2010 and 2022.
Philip Lowe was replaced as RBA governor in September after suggesting that 2021 rates would remain unchanged until 2024 “at the earliest”, only to then increase them 12 times in just over a year then that the Russian invasion of Ukraine was driving up crude oil prices for a while. Covid supply constraints.
Market economics director David Koch, best known as the former host of Sunrise, said there were no Melbourne Cup Day winners after the latest 25 basis point increase.
The contrast was drawn between young and middle-aged people paying off mortgages or struggling with higher rents, and baby boomers with large savings and valuable real estate assets (pictured, a bartender from Sydney).
The data backs up Ms Bullock with figures from the Australian Bureau of Statistics showing the cost of living for people on age pension rose 5.3 per cent in the year to September – a level slightly below inflation – as workers struggled with a 9 percent increase in daily expenses.
“A rise in rates was certainly unlikely today, but it still doesn’t help with the pain in the hip,” he said.
“For some, an extra $100 has been affected by minimum monthly repayments, at a time when we can least afford it.
“The RBA needs to keep inflation under control, otherwise it could really take off in 2024. A tough day, but let’s hope it’s the last for a while now.”
The Reserve Bank’s new forecasts will be released in more detail on Friday when it releases the quarterly monetary policy statement for November.
What the latest rate hike means
$500,000: Up $83, from $3,141 to $3,224
$600,000: Up to $99 from $3,769 to $3,868
$700,000: Up $116, from $4,397 to $4,513
$800,000: Up $131, from $5,026 to $5,157
$900,000: Up $148, from $5,654 to $5,802
$1,000,000: Up $165, from $6,282 to $6,447
Source: Commonwealth Bank variable rate for a borrower with a 20 percent deposit, rising to 6.69 percent, from 6.44 percent, to reflect the Reserve Bank of Australia’s increase to 4, 35 percent, up 4.1 percent.