This Week in Finance: 14 October 2022
As the cost of living continues to dominate the media, people are starting to grow wearier and wearier, with consumer confidence falling significantly in the past month.
Energy bills are racking up too, with some vulnerable groups pleading with the Australian Government to make energy-efficient household options more accessible.
Also, many Australians don’t know their credit score, though experts say it’s important to know your score now more than ever.
Despite the pessimistic theme of this week’s financial news, there are some promising stories too. As the fuel excise is back in full swing, many expected prices to immediately skyrocket, yet the opposite seems to be happening. Also, credit card debt has reached near two-decade lows, despite record-high spending.
Finally, we touch on what happened to all that early access superannuation money during COVID-19.
Read more on all these top money stories from the past week below.
Cost of living dominates the media
It’s no secret that one storyline dominates the ink of the newspapers at the moment - the cost of living.
Despite multiple other headlining stories in recent months, such as Scott Morrison’s ministry scandals and Donald Trump’s run-in with the FBI, the rising cost of living reigned supreme on Australia’s front pages, with 9% of the coverage over July and August.
While the front pages mainly focussed on the hard stats and macroeconomics, Medianet analysis found that within the pages of the newspaper (or the scrolls of the mouse) lay the stuff that affects the everyday Aussie: 29% of stories focused on groceries and household spending, and 18% on fuel.
And it seems the everyday Aussie’s trust in the way things are going is steadily decreasing, with the latest Consumer Sentiment Index (CSI) by Westpac falling 0.9% to 83.7, almost brushing shoulders with pandemic-level lows.
However, the smaller-than-expected RBA cash rate rise of 25 base points (bps) in October potentially averted even lower numbers.
Though many were expecting a 50 bps rise in October, Commonwealth Bank (CBA) was one of the only banks to predict the rate rise of 25 bps correctly. CBA also predicts easing future cash rate increases: Gareth Aird, CBA’s head of economics, said the current official cash rate of 2.6% is above the “neutral” rate and is restricting economic activity.
“The cash rate now sits in restrictive territory based on the RBA’s view that the neutral rate is around 2.5 per cent,” Mr Aird said.
According to CBA, the cash rate will only rise once more in November, and by 0.25%, leaving it at 2.85%.
Energy bill climbs leaving some behind
Household energy bills have jumped 25% since April 2022, an average of $300, according to consumer watchdog the Australian Competition and Consumer Commission (ACCC).
ACCC chairwoman Gina Cass-Gottlieb regarded the war in Ukraine, unexplained generator outages, and climate change-induced flooding affecting coal mines and coal-fired generators as factors causing these steep price increases.
One group in particular feeling the heat of the rising energy bills is families. According to a survey by Australian Parents for Climate Action, nearly 95% of Australian families have had to cut spending on essentials (groceries, heating during winter), due to the demanding cost of living.
Almost 10% are accumulating debt attempting to manage rising energy costs.
Australian Parents for Climate Action CEO Nic Seton said the Government needs to provide a sustainable, long-term move toward renewable energy.
“We need to support households now by making it easier for them to access affordable and efficient energy, through upgrading appliances and making sure that they can switch over to electric transport in an affordable way,” Seton said.
The majority of families surveyed (95%) agree with this sentiment and want greater government investment and support to make energy-efficient household options more accessible.
Credit card debt hits two-decade low
For the first time since 2003, Australia’s total credit card debt is below $17 billion, according to the latest Reserve Bank credit card data.
Credit card balances accruing interest fell to $16.94 billion in August 2022, a fantastic $1.38 billion less than August 2021 and $19 billion less than the peak of credit card debt in February 2012, which sat at $35.9 billion.
RateCity.com.au research director Sally Tindall congratulated Aussies for the low debt numbers.
“With tough times ahead, it’s great to see people clearing their debt where they can. Healthy tax returns are likely to have given some families the opportunity to get on top of their credit cards,” Tindall said.
Could this fall be due to the RBA interest rate hikes? Are people too wary of using credit? Apparently not. Despite debt falling, spending has actually reached a record high. The monthly value of credit card transactions reached $26.59 billion in August, 11.9% higher than July.
Ms Tindall commented on the seemingly impervious nature of credit card spending to the RBA cash rate hikes.
“With about 35 per cent of mortgages on a fixed rate and a two-to-three-month lag for people on a variable rate, these RBA hikes are taking a while to filter through,” she said.
“Additionally, some borrowers may not be paying significantly more yet, if at all, because they were already making higher repayments before the hikes began.”
14 million don’t know their credit score
What’s more, 7% are too scared to check and 6% don't know what a credit score is.
Personal finance expert at Finder, Amy Bradney-George, said knowing your credit score is more important than ever before.
"It isn't just a number – your credit score is a measure of how well you're managing your finances,” she said.
"Whether you are buying your first home, applying for a credit card or taking out a loan for a car, your credit score can help you understand how banks see you – and your chance of getting the loan.
Ms Bradney-George explains how in light of the recent Optus data breach, it’s important to know your data is secure.
"An unexpected drop in your credit score, or declined credit applications, can be a telltale sign that your data has been compromised.”
If you would like to access your credit score, many online services like Tippla or Credit Savvy allow you to do so for free. Otherwise, you can access your credit report from illion, Experian or Equifax every 3 months.
Fuel excise restoration: what now?
The fuel excise has now been fully restored to a new rate of 46.0 cpl, after a short 6 months of bliss (though petrol bowsers still saw record highs during the period). Though motorists are expected to see a hike in fuel prices, the effect won’t be immediate.
Thanks to the cyclical nature of petrol prices, the restoration of the full excise coincided with the peak and subsequent fall of the cycle on the east coast of Australia. During the week after the full restoration (29t Sep - 5 Oct), unleaded prices in Sydney, Brisbane and Melbourne decreased between 2 cpl and 7 cpl.
Unfortunately for Perth, the full restoration coincided with a rising fuel cycle and motorists felt the sting of a 25.3 cpl increase.
Of course, when the cycle begins to peak again, the east coast will also feel the sting. CommSec Senior Economist Ryan Felsmen told The New Daily that average prices could soon reach a staggering $2.20.
The ACCC has warned major fuel wholesalers and retailers that they are closely monitoring retail prices and that there will be consequences if any price collusion is detected.
How people spent their super after early access scheme
COVID-19 proved a difficult time for many around the world. During the first year of the pandemic, the Australian Government granted early superannuation access to workers who experienced a 20% decline in working hours.
Eligible persons were allowed to access up to $10,000 between April and June 2020 and a further $10,000 between July and December 2020. As much as $36 billion was withdrawn between the five million who took up the offer.
So what did they do with all that money?
Some say most was spent on beer, food delivery and gambling, though new research is suggesting otherwise.
Commbank data analysed by The Conversation shows that many who withdrew their supers paid back high-interest debts (like those credit cards) and boosted their savings.
In the three months following the scheme, it was found that those who withdrew their super early averaged $437 less in credit card debt and $431 less in personal loan debt than non-withdrawers (age and income matched).
This could mean the scheme fulfilled its intended purpose: providing a financial boost to Australians in need of a lifeline during the turbulence of the pandemic.
Check back next week for another wrap on the week’s biggest finance stories.
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