Inflation is out of control. Everywhere you look, prices are rising and your dollar is not going as far. While there are many reasons for this economic turmoil, economists say one section of society is at the root of the problem – the baby boomers.
We can all see the effects of inflation reflected in the prices around us, but whether these effects are positive or negative, largely depends on your status as a property owner.
Economist Leith van Onselen says that right now “there are three Australias”.
First, he says, there are renters who have suffered double-digit rent increases while simultaneously experiencing the sharpest fall in real wages in Australian history.
Then there are the mortgage holders, making up roughly one-third of Australians. This group is being hammered by aggressive interest rate rises, while also suffering from the falling real wages.
Average variable mortgage repayments have increased by around 50 per cent, shaving tens of thousands of dollars in annual disposable income from the budgets of mortgage holders.
Finally, there are the lucky one-third of households – mostly older Australians – that own their homes outright who are neither affected by the Reserve Bank of Australia’s (RBA) aggressive interest rate rises nor the rental hyperinflation.
It’s no secret that most of Australia’s real estate is owned by older people, with younger generations skewing more towards renting or holding a large outstanding mortgage.
Not only are the baby boomers the generation most likely to benefitting from inflation, but Mr van Onselen says they’re also the generation causing inflation to get worse by spending more – possibly from all that extra rental income they’re receiving.
“According to an analysis of seven million Commonwealth Bank of Australia (CBA) customers’ purchasing habits, those aged under 35 increased their spending by only 3.4 per cent 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,” he says.
“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 per cent 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 per cent.”
The CBA’s data also showed that the substantial increase in spending at cafés and restaurants reported in official Australian Bureau of Statistics (ABS) data has been driven by older cohorts, who are spending 18 per cent more on dining out than the previous year, compared to a 7.1 per cent increase among under-35s.
Older generations are driving Australia’s increased household consumption and are forcing the RBA to respond with higher interest rates.
Has your spending gone up recently? Do you think it’s fair to blame one generation for inflation? Let us know what you think in the comments section below.
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