“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.”
Construction costs in the housing sector continue to be a key driver of inflation, according to RBA governor Michele Bullock.Credit: Louie Douvis
Bullock said apart from low-income households, younger people were also being hit by cost-of-living pressures.
She said this group 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 fewer savings to act as a financial buffer.
“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,” she said.
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“And as labour market conditions ease, more households will experience a strain on their finances from unemployment or reduced working hours.”
But Bullock said while there was financial pain across parts of the community, the bank remained committed to bringing inflation which itself caused hardship for many Australians including the most vulnerable.
“Our experience of how costly inflation can be is the reason that getting inflation back to the target range is our priority,” she said.
Bullock said while inflation in some parts of the economy was slowing, it remained elevated in housing costs and so-called market services. These include electricity, insurance, warehousing and logistics costs.
She said the bank’s discussions with businesses continued to suggest firms were continuing to pass through higher costs to consumers through higher prices.
“The key takeaway here is that domestic capacity pressures, in both housing and market services, are contributing to above-target inflation,” she said.
“Despite a gradual easing over the past 18 months, the labour market remains relatively tight, with labour availability still a constraint for some businesses and job vacancies elevated.”
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