“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.”
Bullock said along with low-income households, younger people were the most at risk as they had less scope to reduce their spending by trading down to cheaper goods as they were probably already buying these types of products. They also had lower savings to act as a financial buffer.
Asked about the treasurer’s remarks on Monday that successive Reserve Bank rate hikes were responsible for “smashing the economy”, Bullock said she had “no comment to make on those comments”.
“The role of interest rates is to try and temper demand. That’s what monetary policy does, and it’s working,” she said.
“If we don’t get inflation down, that’s bad for everyone, absolutely everyone. So that’s the job I’m focusing on. That’s the job the board is focusing on … I really think the board thinks at the moment, we’re still on that narrow path.”
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Finance Minister Katy Gallagher said the national accounts showed clearly that household consumption, particularly discretionary spending, had fallen substantially.
She said household budgets had been smashed, with the RBA’s 13 interest rate increases from May 2022 contributing to that pain.
“The bank’s got a job to do to get inflation down, but we’ve also got a job to do to explain what we’re seeing in the economy and what we know is happening, and that is that households are under huge pressure,” she said.
Opposition Leader Peter Dutton said households had just gone through six consecutive quarters of negative growth.
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“That’s why families are really hurting, and I think the prime minister needs to start understanding that,” he said.
Bullock also revealed the RBA, which next meets on September 23-24, was particularly focused on inflation pressure out of the housing construction sector.
While inflation for some goods such as groceries and consumer durables was now around its historical average, high construction cost growth, the lift in rents and price increases in areas from insurance to electricity were still elevated and only gradually easing.
The bank’s interest rate settings combined with high inflation are biting into the business sector too, with CreditorWatch’s measure of business insolvencies now above its pre-COVID average.
Australian Industry Group chief executive Innes Willox warned the business sector was struggling and some firms were considering cuts to survive.
“Anecdotally, talk is increasingly turning to significant business restructuring with its attendant impacts on employment and investment,” he said.
“The reality is that significant parts of our private sector are facing very strong headwinds. This is particularly acute among small business, but pain is being felt right across the board.”
Source Agencies
