Will cost-of-living anger cause a change of government at this federal election? | 7.30

Key Concepts

• Inflation surge (2022 onwards)
• Supply chain disruptions
• Government stimulus
• Interest rate hikes
• Cost of living crisis
• Household income and well-being
• Mortgage stress
• Rental affordability
• Government policies to ease cost of living
• RBA cash rate
• Income support system

Inflation Surge and Initial Response

• Trigger: Russia's invasion of Ukraine in February 2022 exacerbated existing economic pressures from the pandemic. Putin effectively declared war just before 5 AM Ukraine time.
• Global Impact: Disrupted Russian oil supplies and broader supply chains.
• Australian Context: Inflation rose sharply from 3.5% in December 2021 to 6% by June 2022.
• Monetary Policy Response: The Reserve Bank of Australia (RBA) began raising interest rates on May 3, 2022, from 0.1% to 3.5%. This was described as "withdrawing some of the extraordinary monetary policy support" implemented during the pandemic.

Voter Sentiment and Cost of Living Concerns

• Initial Blame: Voters initially attributed inflation to "World forces" rather than the government.
• Rising Concern: Cost of living was a concern for 32% of voters in 2019, rising to 49% in 2022 (highest since 2010), and further to 65% in 2025.
• Qualitative Insights: Focus groups revealed a strong sentiment that "everything goes up except for my wages." People felt like they were struggling and things were getting worse.

Breadth and Impact of the Price Shock

• Extensive Price Rises: Affecting interest rates, mortgages, rents, food, insurance, and energy.
• Demand and Supply Factors: Strong demand initially contributed, but supply chain disruptions played a significant role.
• Uneven Impact: Working-age households with mortgages experienced the biggest increase in cost of living.
• Mortgage Burden: Average mortgage payments increased by 30% between 2021 and 2023, reaching approximately $35,000 per year in 2023, up from $25,000 two years prior.

Vulnerable Groups and Housing Stress

• Single-Parent Families: Particularly vulnerable due to pandemic-related job losses and increased caregiving responsibilities.
• Income Poverty: Over 30% of people in single-parent families are experiencing income poverty, financial stress, housing stress, and material deprivation (going without essential items).
• Housing Costs: Housing costs (mortgages and rent) were identified as the biggest driver of anger among voters.
• Rental Market: The lowest quartile of the rental market experienced an almost 18% jump in prices, impacting families in already precarious housing situations.

Government Policies and Political Implications

• Government Measures: The Albanese government introduced policies to ease the cost of living.
• Coalition Opposition: The Coalition criticized these measures, arguing they were keeping interest rates higher for longer.
• Limited Impact: Many spending measures "don't make much of a difference to the lived reality" and struggle to "cut through" to voters.

Future Outlook and Potential Solutions

• Inflation Trajectory: Inflation is expected to "Bobble around" 2.5% on an underlying basis over the next 12-18 months.
• RBA Forecast: The RBA cash rate is projected to be at 3.35% by the end of the year (compared to 4.1% at the time of the recording).
• Government Levers: Governments can address the cost of living through "bricks and mortar" solutions (housing) and income support.
• Income Support System: Australia's income support system is "one of the lowest in the OECD," falling behind the US and Greece.
• Political Strategy: The government needs to shift the focus from its performance on cost of living to a comparison with the opposition leader, Peter Dutton, and whether he would make a difference.

Conclusion

The cost of living crisis in Australia, triggered by global events and exacerbated by domestic factors, has had a significant impact on households, particularly those with mortgages and single-parent families. While the government has implemented policies to address the issue, their effectiveness is debated, and voter sentiment remains negative. The future trajectory of inflation and interest rates is uncertain, but addressing the underlying issues of housing affordability and income support is crucial for long-term solutions.