Professor John Quiggin, a senior fellow in economics at the University of Queensland says the difference in spending largely come down to generational differences in home ownership.
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00:00 18 to 24 year olds actually among the groups of increase they're spending.
00:06 So it's specifically people in their late 20s who are most affected by this.
00:12 And really the generational frame is unhelpful.
00:14 This is all to do with essentially housing and housing tenure.
00:19 So people who own their own homes or in the case of people under 25 are living at home
00:24 and doing fine.
00:25 People who are renting and paying off mortgages, not so much.
00:29 Now that roughly correlates with age, but of course there are plenty of older Australians
00:34 who are renting and finding it very difficult.
00:36 I mean it was interesting that the spending among that 25 to 29 year old cohort continued
00:42 to be the most impacted.
00:44 They're winding back on discretionary purchases and essential market and utilities expenses
00:50 as well.
00:51 So that's the cohort that is seemingly doing it the toughest?
00:54 Yes because of course not the entire cohort, but a large part of that group are people
00:59 who are either renting or have recently taken on mortgages and are therefore most exposed
01:05 to interest rates.
01:07 But again a generational framing is really unhelpful.
01:10 Okay, well what is a helpful framing then when you look at what sectors are spending
01:15 what because you might read the headline that the older cohort, being the boomers who might
01:21 own their homes so they're not really impacted by the increase in interest rates etc, are
01:27 being able to, are somewhat immune and they have a buffer to this cost of living crunch?
01:33 But it's correct to look at this actually in terms of home ownership, the incentives
01:37 for buying houses, the difficulties faced by renters.
01:43 Again we should really be looking at why are people facing these costs and the answer is
01:47 the people exposed to interest rate increases are those who have taken on mortgages relatively
01:53 recently, the people exposed to higher rents of course are those who don't own their own
01:58 homes.
01:59 So really we should look at this in class terms, not in generational terms.
02:02 Yes it's interesting isn't it because there's a narrative and I don't think it makes a whole
02:05 lot of sense that the older people, the retirees, the superannuants are spending a lot, that's
02:10 contributing to inflation.
02:11 But when you look at the inflation basket, housing makes up a good 20 to 25% depending
02:17 on the year and then beneath that you have some of the discretionary spends.
02:21 Is there any evidence that spending in that cohort is contributing to inflation?
02:26 Well certainly I think homeowners, people who own their own homes outright have discretionary
02:32 income and are spending it.
02:35 Again I think we have to ask the question rather than what's contributing to inflation,
02:41 whether the cost of the policy of driving inflation down to 2 to 3% as fast as possible,
02:48 the costs of that are very unevenly borne and there's a question I think as to whether
02:53 the policy in the Reserve Bank in particular is justified.
02:56 So what are some of the policies that are currently in place do you think are perhaps
03:01 not working and what would you prefer to see?
03:03 Do you not think that the RBA should be targeting inflation between 2 and 3%?
03:09 I don't think they should.
03:10 I think they didn't make a strong case for that target band and certainly no case at
03:16 all for saying a top priority policy should be driving inflation back down to that band.
03:20 I mean that's very suitable for the interest of the Reserve Bank which as a body gets lots
03:26 of credibility from this but clearly it's bearing the cost compared to a policy which
03:31 we adopted in the 1980s, the last big slowdown of allowing rate of inflation to fall more
03:36 slowly.
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