There have been numerous observations in the media about the apparent ineffectiveness of monetary policy, i.e. interest rates, in curbing our persistent high inflation. One of the alleged culprits is the Baby Boomer cohort!
The argument goes that because retirees generally own their home and consequently have little or no debt, rising interest rates do not affect their spending power. In fact, if a retiree is conservatively invested, he or she may actually have increased spending power due to these higher interest rates. We believe there is some truth in this. Retirees are not as greatly affected by rising rates, nor are those who own little or nothing, i.e. Social Security recipients. This leaves the homeowner and business owners squarely in the headlights of the Reserve Bank decisions.
According to research from University of Sydney, by 2026 more than 22% of Australians will be over age 65, compared to 16% in 2020 and only 8.3% at the start of the 1970s. Obviously, as this demographic expands, other groups must proportionately shrink.
We have always maintained that smashing inflation is vital to our long-term financial well-being. Most retirees can well remember the high inflation and subsequent enormous interest rates and the misery that created. They do not want that for their children and grandchildren.
However, the Reserve Bank has only a single weapon to combat inflation and cannot deviate from its course, meaning without other intervention, our most productive Australians face continued financial strangulation from their home and business loans.
There is another way to reduce inflation, that is to reduce spending. The workers have already done this, so it is over to our governments.