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Inflation debate: Older Australians accused of driving crisis

The Reserve Bank of Australia (RBA) has been accused of using young Australians as "cannon fodder" in the fight against inflation after it conceded people aged over-65 are spending more, having "made bank" on the back of increased interest rates.

Appearing at the Senate Economics Legislation Committee this morning, RBA governor Michele Bullock said the nominal data provided to the central bank by the banking sector shows the growth rate of spending across all age cohorts has fallen.

However, upon questioning, she conceded that while those aged under 65 years have reduced their spending, those aged 65 and over have increased their spending over and above inflation.

"I understand that there is a younger cohort that in real terms is cutting back their expenditure, but the fact remains that everyone is slowing their expenditure. They might still be spending but the growth rate in their expenditure is not as great as it was a year ago... It doesn't mean their spending is going down, it's just not growing as quickly as it was," Bullock said.

Seeking further clarity, Senator Nick McKim asked Bullock if there is currently a situation in which "younger folks who are more likely to be carrying debt are actually reducing their spending while older folks who are more likely to have savings and lower or no debt are still increasing their spending."

Responding, Bullock said she doesn't believe younger people can be equated with having debt.

"It depends on what you think of younger folks. So, there's people who might have families and mortgages, you might call them younger, and there's also a whole younger cohort that don't have mortgages but they're renters," she said.

"And we've got a whole lot of things going on here, number one being inflation, which everyone is seeing the cost of living rise dramatically. Everyone is being hit by that, young folks, old folks, everyone.

"Then you've got renters, who are typically younger and typically lower income, and those people are cutting back their expenditure, I think. And then you have younger to middle-aged people with mortgages, and they will be impacted by inflation and interest rates and they're cutting back their expenditure.

"And then you're right, there's another cohort that are perhaps getting more income on their savings, they have a savings buffer accumulated during the pandemic and they are less constrained. They are still being hit by inflation; they are still observing the cost of living going up."

Not satisfied, McKim asked explicitly whether people over 65 are spending more, to which Bullock said she'd have to "take the specifics on notice" but that her understanding is that, in nominal terms, they are.

On whether monetary policy could be used to curb this, Bullock outlined there are three monetary policy channels and the channel that most effects over-65s is the incentive to save when rates are higher, which largely impacts people who don't have debts.

"In general terms, government policies can impact different cohorts, monetary policy cannot; it has one lever, and it impacts people differently," she said.

McKim then asked whether the increased spending by older Australians is stimulating demand and driving inflation.

"The proposition I'm putting to you is that you've put up interest rates and that's disproportionately impacted on young people as opposed to older people. Young people get used as cannon fodder in the war on inflation to try and solve a problem that they're actually not causing because they're cutting back their spending, whereas older people make bank and increase their spending because they have more money because a higher inflation rate works for them," he said.

"How is that fair or just or equitable?"

Bullock reinforced that monetary policy only has one lever, being the interest rate.

"We use it to try and impact aggregate demand and we're having an impact on aggregate demand," she said.

"The distributional impacts that you're referring to, we understand that... but I've only got one lever and I have to get inflation down because the best thing I can do for everyone, including all the young people who are being hurt by this, is to get inflation down."

Read more: inflationRBAReserve Bank of AustraliaMichele BullockSenate Economics Legislation CommitteeSenator Nick McKim