Baby boomers appear to be going through a cost-of-living crisis and are at risk of driving up interest rates as they continue to spend.
The older generation who lived with interest rates of 18 per cent in 1989 are now suffering the least from the Reserve Bank’s 13 interest rate rises in 18 months.
The most aggressive rate increases in a generation are disproportionately hurting the young and saving the old, with the cash rate now at a 12-year high of 4.35 percent.
Grattan Institute economist Brendan Coates said baby boomers, who are more likely to own their own home, were the ones driving up inflation with their spending.
“The fact that we have so many older and cash-rich Australians right now who are not really affected by higher interest rates means that further interest rate increases are needed to control inflation,” he said to WhatsNew2Day Australia. .
‘That’s true. They are not squeezing them at both ends.
New data from the Australian Bureau of Statistics released on Wednesday showed employees’ living costs rose 6.5 per cent in the year to March, as they battled rising mortgage costs.
Baby boomers appear to be experiencing a cost-of-living crisis and are at risk of driving up interest rates as they continue to spend (photo is a stock image)
New data from the Australian Bureau of Statistics released on Wednesday showed employees’ living costs rose 6.5 per cent in the year to March, as they battled rising mortgage costs. But those receiving an age pension saw their living costs rise by just 3.3 per cent, compared to 3.4 per cent for self-funded retirees.
But those receiving an age pension saw their living costs rise by just 3.3 per cent, compared to 3.4 per cent for self-funded retirees.
Both measures for retirees, who are more likely to have already paid off their homes, were below the overall inflation rate of 3.6 percent.
“Older Australians have typically paid off their homes and therefore the increase in living costs is much smaller because they are not affected by higher interest rates,” Mr Coates said.
Baby boomers made up 21.5 per cent of Australia’s population in the latest 2021 census, outnumbering Generation X at 19.3 per cent, Generation Z at 18.2 per cent, but tying with Millennials at 21.5 percent.
Having paid for their house, this group, born between 1946 and 1964, are the ones who benefit when the RBA cash rate increases, especially if they have their savings in a term deposit account.
“It’s fair to say that many older people win when interest rates rise and younger people tend to lose,” Mr Coates said.
“Those who are least affected by mortgage costs, such as baby boomers, are the ones who continue to spend in the economy.”
Richard Holden, an economics professor at the University of New South Wales, said that while baby boomer spending was a factor, inflation in services – as opposed to goods – was the real cause of the cost crisis. of life.
“They tend to have a larger labor component and that’s where wage increases are accruing above inflation target levels,” he told WhatsNew2Day Australia.
‘Spending on lawn bowling plays a role, but it is only a small part.
‘If you asked me: “What is the key factor of inflation?” – I don’t think baby boomers spend a lot.’
Richard Holden, an economics professor at the University of New South Wales, said that while baby boomer spending was a factor, “bowling spending plays a role, but it’s only a small part” (pictured). show bowlers in Port Macquarie, on the central north coast of New South Wales).
The 30-day interbank futures market already rules out rate cuts in 2024 and is now betting on a single rate cut in 2025
A breakdown of official inflation data showed a 9.2 percent rise in prices for recreational sports and cultural services, which would cover activities such as bowling and hobbies that older people have more time for.
Postal service prices soared 12 percent, and older people were more likely to send letters rather than use email.
But younger people are also hit by a 7.8 percent increase in rents and a 6.1 percent increase in high school costs.
The 30-day interbank futures market has now ruled out rate cuts in 2024, with underlying inflation measures both at 4 per cent or higher, which is higher than the RBA’s target of 2 to 3 per cent.
Now he is betting on a single interest rate cut in 2025.
ANZ senior economist Catherine Birch said a rate rise in 2024 was possible but unlikely because spending on goods and services, per Australian, had been falling since late 2022.
“We think the likelihood of another interest rate hike is quite low,” he told WhatsNew2Day Australia. “You can’t rule it out.”