Low-income Australians will be hardest hit by inflation, says RBA

Once again, the Reserve Bank has made it clear that the poor and marginalized in the community will feel the brunt of its tightening of monetary policy to control inflation – which no one in Australia outside of society’s C suites does. ‘is responsible.

The central bank’s August monetary policy statement, released on Friday, makes no secret of this – Australian households face falling real incomes through 2024.

The RBA now sees real household disposable income falling for almost a year and a half, including a 3.1% drop in the June quarter next year. It will only start growing at the end of 2024, which is too far from the forecast period to be accurate.

In the May statement, the bank said it expected household income to rise 0.9% in the last three months of this year. Now he thinks they will decline by 0.9%.

Even by the end of next year, revenues are expected to decline by just under 1% (0.9%).

The line from the RBA, as it has repeatedly hiked rates, has been that Australian households have plenty of ‘buffers’ – savings built up during the pandemic that they can now draw down to meet mortgage payments. higher and an increase in the cost of living.

Except low-income people have far fewer tampons. Finally, the Bank admitted it.

“Rising prices, especially for food and fuel, are likely to have a particular impact on low-income households (who tend to spend a greater share of their income on these necessary items),” he said. said the bank.

“While household balance sheets are generally strong and many households should be able to absorb these price increases, others have limited savings reserves and may need to cut spending elsewhere. For some of these households the most vulnerable, the impact of price increases will be mitigated to some extent by the indexation of social assistance benefits twice a year, although price increases will reduce the real incomes of recipients in the short term.

Low-income households with mortgages, of course, face the double impact of higher mortgage costs.

And it’s not much better for tenants, who are facing rapidly rising rents due to a housing crisis that no politician seems serious about addressing.

These households can do next to nothing about inflation—they have little discretionary spending to curb.

For these households, reducing demand would mean choosing between refueling the car, paying the electricity bill or putting food on the table. But they must pay the price for supply chain problems, soaring energy prices, the pandemic and the greedy profits of corporate executives using general inflation as a hedge to boost profits.

The Bank has revised down its shorter-term wage growth forecast from May. What was 2.7% for the year to June should now be 2.6%. But that’s fine – as always with the RBA, wage growth is imminent, up to 3.4% in June 2023 and 3.7% a year later. If only workers could bring the RBA pledges to the supermarket and pay for their groceries with the SMP forecast. The June Wage Price Index (WPI) will be released on August 17, so we will know if wage growth has finally reached a whopping 2.5% for the first time since 2014.

The Bank expects inflation to peak at 7.8% in the December quarter, decline to 6.2% by the middle of next year and stay at 3.5% during the quarter of June 2024.

That still means a massive 2.8% drop in real wages this fiscal year, following a 3.5% drop in 2021-22. All this after a decade of stagnant wages – a decade the RBA could never bring itself to predict.

The RBA is also bullish, with more solid grounds, on unemployment. The job market is expected to defy monetary policy tightening, with the unemployment rate still at 3.4% by the middle of next year and 3.7% 12 months later.

But by turning the screws on households, and particularly low-income people, the Bank admits it could have an impact. “A decline in real average household incomes could weigh more on spending than expected, particularly if household wealth also declines.”

This will in turn ripple through the labor market, with lower spending forcing companies to lay off staff, particularly in discretionary spending areas like non-essential retail, hospitality and travel.

It is also where many low-income people work. To steal a line from Paul Keating, God help you if you’re a low-income renter with a retail job.