Next Tuesday I will be running my live show on Household Financial Stress, which continues to worsen. However, what constitutes “stress” is being debated widely – its a matter of definition.
The RBA has joined the debate, but I will argue in today’s show they conveniently presented a lop-sided story, which understates the true picture.
Andrea Brischetto, Head of Financial Stability gave a speech at the Sydney Banking and Financial Stability Conference, University of Sydney, titled Financial Stability and the Financial Health of Australian Mortgagors.
There has understandably been a lot of focus on this issue of late, with many households facing substantial financial pressures from high inflation and higher interest rates. Some of the households feeling these pressures most acutely are those with lower incomes, including many renters.
But the focus was on households with mortgages and how their financial health relates to financial stability.
There has been a lot said and written about the issue of household financial stress in recent times, using a multitude of data sources and reporting on many different individual experiences. Wednesday’s national accounts showed how inflation, tax and interest rates have weighed on real household disposable income. And as RBA Governor Michele Bullock said when discussing the challenge of inflation following the RBA Board meeting this week: High inflation makes life difficult for everyone and damages the functioning of the economy. It erodes the value of savings, hurts household budgets, makes it harder for businesses to plan and invest, and worsens income inequality. The Governor emphasised that the effect of all of this is that many households are experiencing a painful squeeze on their finances.
So she presented an overall picture of the situation, drawing on the RBA’s extensive work in this area, which is published in detail in our regular Financial Stability Review.
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