Outrage is continuing to grow at Philip Lowe after the Reserve Bank governor’s “out-of-touch” comments suggesting Aussies work more and spend less to cope with rising interest rates.
The 61-year-old economist made the comments at the Morgan Stanley summit on Wednesday, a day after the central bank delivered its 12th rate hike since May last year to bring the official cash rate to an 11-year high of 4.1 per cent.
The latest rise, which Treasurer Jim Chalmers said a lot of Australians would find “difficult to cop”, continues the central bank’s fastest tightening cycle on record in an effort to tame persistently high inflation of nearly 7 per cent.
Financial comparison website Finder estimates that the rate hike will set Aussies with an average loan back by an additional $1200 every month.
“If people can cut back spending, or in some cases find additional hours of work, that would put them back into a positive cash flow position,” Dr Lowe told the summit in Sydney.
“People are affording to pay their mortgages even as they roll off from the fixed-rate loans to variable-rate loans. People are having to cut back with spending, and I think that’s going to be the environment we’re operating in for a while.”
It’s not the first time Dr Lowe’s lifestyle advice has rubbed Australians the wrong way — in May, he told a Senate Estimates hearing that one solution to the housing crisis was for people to take in a roommate, saying “we need more people on average to live in each dwelling and prices do that”.
“Because as rents go up people decide not to move out of home, or you don’t have that home office, you get a flatmate,’’ he said. “The increase in supply can’t happen immediately, but higher prices do lead people to economise on housing.”
The embattled governor, whose term ends in September and may or may not be extended by the Treasurer, is facing growing backlash over his latest statements.
“Philip Lowe has suggested people struggling with housing costs consider share housing and that we should work more,” university lecturer Victoria Fielding wrote on Twitter.
“Would he like me to kick my kids out of their bedroom to bring in a stranger, and work nights as well as days? He is dangerously out of touch with reality.”
Author George Grundy wrote, “Struggling Australians can cut back spending or work more to get into ‘positive cash flow’, says Philip Lowe. I honestly don’t know why there aren’t riots in the streets. Criminally, almost psychotically of touch. Sack him. Sack him now @AlboMP.”
The Guardian journalist Amy Remeikis said, “Instead of a CEO sleep out, we should just put neoliberal economists, the RBA board and big business leaders on the average Australian wage for six months (no access to savings) and get them to show us how it all works — budgeting, finding housing etc., in this economy.”
Rick Morton from The Saturday Paper added, “Look, I know what he is trying to say. I know that to him this is just a number puzzle and technically that would ‘solve’ it, if it were only a sudoku. Read the room one time I beg you.”
He added, “Philip Lowe is that AI thought experiment where the intelligence is asked how to get rid of all paperclips and says ‘easy, you just eliminate humanity’.”
Speaking to The Project on Tuesday night, economist Nicki Hutley was asked whether the anger at Dr Lowe was misdirected and it was actually “big corporations price gouging” that was causing inflation.
“Whilst we’ve certainly seen profits go up again in the March quarter, it’s not all about price gouging,” she said.
“In some sectors that’s certainly the case, we’re certainly seeing that with airfares, but in most sectors it’s not the case. It has been disruptions caused by Covid, it has been because we’ve had so much stimulus to demand during the Covid period and we couldn’t produce things quickly enough, and basic economics, you get too much demand, not enough supply, price go up. That’s essentially what’s happened. Add to that the war in Ukraine and the impact on energy prices, and you’ve got just a recipe for disaster.”
But Ms Hutley said as the head of the RBA, Dr Lowe “has to wear a fair amount of responsibility, not just for what’s happening now but for the earlier mistakes of not picking the runaway inflation early enough”.
Host Waleed Aly also suggested government policy was partly to blame for inflation, noting the RBA only had “one lever”.
“Most economists have said … the government did a good job with this last budget, that they actually got the balance right between tightening fiscal policy and being able to help certain households without overstimulating inflation,” Ms Hutley replied.
“Treasury’s own modelling showed the same thing. So I don’t think you can point to the government. We had a small budget deficit that’s going into a very, very small budget surplus, that’s tightening policy by anyone’s definition which helps to bring down inflation.”
Writing in The Australian Financial Review this week, however, economist Steven Hamilton took the opposite view, saying “the government’s claims this is all someone else’s fault are increasingly untenable”.
“The Treasurer and Prime Minister’s claim, on the weekend before the budget, that the energy price relief would be disinflationary, is baffling,” he wrote.
“A simple heuristic for assessing whether a measure is expansionary is to consider whether it increases aggregate demand. There should be no doubt in the mind of any economist that energy subsidies are expansionary, freeing up funds for consuming other goods and services.”
frank.chung@news.com.au
— with Samantha Maiden