Are you benefiting from economic inflation?

Key points:

• For one-third of the country with a mortgage, interest rates have been eye-watering and their rates of spending have only increased by four to 7.7 percent.
• For the roughly two million landlords in the nation, roughly 70 percent are between — 34 to 64 years old, with the age range skewing towards older people.

Despite the cost of living crisis, new data shows that older people have increased their spendings by  13 percent, according to Commonwealth Bank of Australia’s CommBank iQ report.

The report looked at the spending rates of roughly seven million Commonwealth Bank customers and found that inflation has been a significant thorn in the side of demographics more likely to rent than own a home or invest in property — namely, younger Australians.

Add to that, the fact that the aged care pension is income indexed to the consumer price index (CPI) and you’ll note that for people over the age of 67 (following the limited eligibility as of July 1), many older Australians are actually benefiting from inflation, rather than suffering from it.

How does someone ‘benefit’ from inflation?

Economic inflation can occur due to a number of reasons, but it primarily occurs when the value of currency is weakened due to an increase in existing currency. If everyone now has two dollars instead of one dollar, the only way the economy will work is if existing prices adjust to the new change in value — thus, nothing truly changes.

However, for those that now require more money to pay rent due to increased interest rates, they need more money for goods and services due to increasing prices and cost of living necessities, but aren’t getting matched in wage increases or support boosts.

Those that own rental property/properties (mostly older Australians) and can adjust the prices to match the market value in a rental crisis (housing bubble created through investment property purchases) both their investment and income/pension streams go largely unchanged.

Guess it pays to invest, huh?

The CommBank iQ report lists varying age groups and assigns them a ‘cost of living pressure score,’ with a baseline of 0. Those with a negative score are set to benefit from inflation and those with a positive score are set to feel the pressure of economic stress.

Homeowners aged between 60 and 74 were set to be unaffected or positively affected by current circumstances, whereas the rate of affluence later in life (75 or older) tends to catch up to homeowners, as reported by Talking Aged Care yesterday.

Check out the full report here: CommBank IQ Cost of Living Pressure 2023.