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Younger Australians bear the brunt of RBA’s aggressive  rate hikes

Younger Australians bear the brunt of RBA’s aggressive  rate hikes

The Reserve Bank of Australia’s (RBA) aggressive interest rate hikes are affecting younger Australians the most, according to CBA's head of Australian economics, Gareth Aird.
While older Australians remain largely unscathed, Aird says that the "pain" of higher rates is being felt by those in the 25-45 age group, many of whom are recent entrants into the housing market or renters who have seen rents rise swiftly over the past year.
In contrast, deposits and savings have significantly grown for Australians aged 55 and over, who are now earning higher returns on those deposits due to the higher interest rates.

Impact on spending and income

Separate data from CBA shows that younger Australians have reduced their spending since the RBA started hiking rates, while older Australians have continued spending as usual. This is evidence of the differing impact of interest rate hikes on different Australian cohorts. There are roughly three groups in the Australian economy:

  • Tenants who are facing double-digit rental hikes and the greatest decline in real incomes in history
  • Homeowners with mortgages who are experiencing the most aggressive rise in interest rates in history and declining real earnings
  • Households, mostly comprising older Australians, who own homes outright and are not affected by the RBA’s aggressive interest rate hikes or rental hyperinflation

The third group, which benefits from higher interest savings accumulated over the pandemic and investments that benefit from the surge in rents, has boosted household expenditure. As a result, the RBA responded with higher interest rates, which are affecting younger Australians, setting up a conflict between generations.

Conclusion

The effects of RBA’s aggressive interest rate hikes are disproportionately felt by younger Australians who are struggling to enter the property market or pay rising rents. In contrast, older Australians are accruing wealth as a result of the RBA’s policy. The disparity in interest rate impact between age groups threatens to cause conflict between the younger and older generations in Australia. Policymakers must consider the needs of all age cohorts to ensure a fair and prosperous economy for everyone.

Published:Friday, 9th Jun 2023
Source: Paige Estritori

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