Household Response To Tighter Policy & Inflation Is Complex

"The other general factor that will shape the path back to 2–3 per cent is how households respond to higher interest rates and prices. Household spending has so far been resilient, supported by household balance sheets that are generally in good shape and stronger income growth. The household saving rate is still higher than it was before the pandemic and many households have built up large financial buffers, including through payments into mortgage offset accounts. But as my colleague, Michele Bullock, discussed yesterday, not all households are alike. Recent borrowers and borrowers with lower incomes tend to have smaller buffers. It is also worth remembering that around two-thirds of households do not have a home loan. Another significant influence on household spending is housing prices, which are now declining in many markets after a large run up. So the situation is complex, with many moving parts, and the Board is monitoring it closely."