Reserve Bank governor Michele Bullock says she is aware that more people than usual are seeking help from community organisations as Australia’s economy slows down and unemployment rises.
She says lower-income borrowers are over-represented in the group of people who are “really struggling” right now.
And the number of owner-occupiers with variable-rate mortgages who are in a “particularly challenging situation” is also rising, but the RBA is doing what it can to bring inflation down, re-balance the economy and return people’s lives to some kind of normality, she said.
“I understand that the board’s message on interest rates is not what many borrowers want to hear,” Ms Bullock said.
“Those with mortgages are feeling the squeeze on their cash flows not just from high inflation, but also from the increase in interest rates that has occurred in response to it.
“And as labour market conditions ease, more households will experience a strain on their finances from unemployment or reduced working hours.
“Information received through the RBA’s liaison program indicates that more people than usual are seeking support from community organisations, and often for the first time.
“This is why it is imperative that we return inflation to levels that mean it is in the background again — at which point it will no longer be distorting our economy,” she said.
Fight against inflation will take years
Ms Bullock made her comments in a speech to the Anika Foundation in Sydney on Thursday afternoon.
Her speech had the title: The Costs of High Inflation.
Her comments came a day after new data showed Australia’s economy was growing at its slowest pace since the 1990s recession, as households cut back significantly on spending.
“Although this group is fairly small overall, those in it have had to make quite painful adjustments to avoid falling behind on their mortgage repayments,” she said.
“This includes things like cutting back on their spending to the more essential items, trading down to lower-quality goods and services, dipping into their savings or working extra hours.
“Some may ultimately make the difficult decision to sell their homes.
“A really important point to note here is that lower-income borrowers are over-represented in the group of people who are really struggling,” she said.
We need to crush inflation. Renters won’t get much relief in short term
Ms Bullock said the “key drivers” of high inflation in Australia at the moment were housing costs and market services inflation, and renter households would not get any relief for a while.
“On the housing side, this reflects both construction cost growth and strong increases in rents,” she said.
“Year-ended growth in advertised rents is still high, reflecting pressure from a rebound in housing demand and limited supply response.
“Rents on new leases take time to impact overall consumer price inflation (CPI) rents because only a small share of the stock of rental properties update leases in a given month and so CPI rents inflation is likely to be high for some time.”
See the graphic below.
“Although this group is fairly small overall, those in it have had to make quite painful adjustments to avoid falling behind on their mortgage repayments,” she said.
“This includes things like cutting back on their spending to the more essential items, trading down to lower-quality goods and services, dipping into their savings or working extra hours.
“Some may ultimately make the difficult decision to sell their homes.
“A really important point to note here is that lower-income borrowers are over-represented in the group of people who are really struggling,” she said.
We need to crush inflation. Renters won’t get much relief in short term
Ms Bullock said the “key drivers” of high inflation in Australia at the moment were housing costs and market services inflation, and renter households would not get any relief for a while.
“On the housing side, this reflects both construction cost growth and strong increases in rents,” she said.
“Year-ended growth in advertised rents is still high, reflecting pressure from a rebound in housing demand and limited supply response.
“Rents on new leases take time to impact overall consumer price inflation (CPI) rents because only a small share of the stock of rental properties update leases in a given month and so CPI rents inflation is likely to be high for some time.”
See the graphic below.
“New dwelling inflation has declined from its earlier peak as materials costs have eased, but it remains elevated.
“There is still a large pipeline of work and ongoing labour shortages for certain trades,” she said.
But Ms Bullock said it was extremely important to get rid of the high inflation in the economy because the longer it persisted, the more damage it could cause in the long term.
“We know the restrictive monetary policy settings that are necessary to bring inflation down are causing hardship to some households and businesses. We are very conscious of that,” she said.
“Inflation has not been as high as it has been recently for a few decades and I think many people have forgotten how bad it is — people under the age of 40 will not have experienced high inflation until the last few years.
“There is a reason why there is so much talk about the cost of living — high inflation hurts everyone, and especially the most vulnerable.
“It reduces what people can buy with their wages, erodes the value of savings and it disproportionately hurts those on low or fixed incomes.
“This is why it is imperative that we return inflation to levels that mean it is in the background again — at which point, it will no longer be distorting our economy,” she said.
Governor leaves politics to the politicians
During the Q&A section of her speech, Ms Bullock chose not to respond directly to questions from journalists about Treasurer Jim Chalmers’s assertion, from earlier this week, that the RBA’s 13 rate rises were “smashing the economy.”
“I understand that people are hurting from high interest rates,” she said.
“But … as I tried to set out in the speech, it’s actually high inflation that is really causing trouble for people, and it’s causing trouble for the most vulnerable.
“The role of interest rates, in this, is to try to temper demand. That’s what monetary policy does and it’s working.
“But we need to see the results in the inflation numbers. That’s what we need to see, inflation coming down … if we don’t get inflation down, it’s bad for everyone, absolutely everyone.”
On Thursday morning, Shadow Treasurer Angus Taylor told ABC radio that the Albanese government was fighting with everyone at the moment, including the Reserve Bank.
“The government is now fighting on two fronts,” Mr Taylor said.
“It’s fighting everybody, frankly, but it’s got two fundamental problems. Number one is inflation is stuck. Our core inflation hasn’t moved since January,” he claimed.
Figures show core inflation has declined from 4.1 per cent in the December quarter, to 4 per cent in the March quarter, to 3.9 per cent in the June quarter.
“At the same time, GDP per capita [has gone] backwards now for 18 months, six consecutive quarters — completely unprecedented,” he said.
Ms Bullock was asked about Mr Taylor’s comments and she declined to engage with them, too.
“He’s doing his job, and I’m doing mine,” she said of Treasurer Chalmers.
