Who is suffering the most in Australia’s cost-of-living crisis?

We know Australians are suffering economic pain. But who is getting hurt most? When the screws tighten, they don’t squeeze us all equally. Many Australians have reasons to complain, but hard data will tell us who is most under pressure, while the latest data from the Commonwealth Bank’s incredibly rich new Household Spending series provides insight into who is tightening their belts most.

Of course, everyone has reason to. The kids are cross because rents and interest rates are high while house prices haven’t come down that much. The millennials are cross because they bought their houses at the peak and now their mortgage repayments have gone up enormously. Gen Xers are cross about the rising cost of living. The baby boomers are cross because their money is in super and the market is still not above its 2008 peak. Finally, the elderly are cross because they are on the pension and it’s not a lot.

Let’s have a look at who is actually in the most pain as the economy worsens. As the next chart shows, the biggest spending fall is from the millennials. They spent around 8% less in the first three months of the year compared to the last three months of last year. That’s a sign that theirs are the budgets under the most pressure. But millennials at least are seeing a little income growth.

Regarding baby boomers, their spending has fallen less, but their income has taken a hit. Of course, this may be due to lifecycle effects. We’d expect retirements and semi-retirements among baby boomers would mean their salary income in any given period may be lower than the preceding period. Still, dealing with rising prices just when your income is transitioning from salary to super drawdowns can’t be easy.

The group I’m worried about the most right now is gen Z. Gen Z is defined usually as people born in 1996 or later. They’re in their late teens or early-to-mid 20s and they should be seeing big income growth. Remember, when we talk about wages rising 3% or 4% a year, that’s on average for the whole cohort, including people whose careers are winding down. Young people should be seeing much higher growth than that as their careers begin and then accelerate. You can add 20% to your wage at the end of your first year. But instead gen Z has had zero wages growth. This is quite a contrast with the same dataset pre-pandemic, which showed gen Z having the fastest wages growth. 

That said, let’s remember members of gen Z are graduating into one of the best labour markets since the baby boomers got their degrees. That counts for a lot. Their circumstances may look perilous in the here and now, but over their lifetimes their job market attachment and early experience should give them the capacity to do better in the labour force than certain generations that went before them — so long as the labour market holds up. And that’s the big question.

What’s the political calculus here? The key refrain in any serious political calculation is: “It’s the economy, stupid.” The economic emotions of this year and the next two will be vital in determining whether Prime Minister Anthony Albanese has an easy run in the 2025 election. The most recent budget didn’t change Labor’s polling numbers, as voters got cost-of-living relief but absorbed the reality of how limited it would be. More so than the budget will be the reality on the ground. 

Labour market deteriorations generally hit young people hardest, because they are not yet vital to their employers. Gen Z is likely to suffer the most as the unemployment rate rises to 4.5% over the next couple of years. Youth unemployment is regularly double the national rate. The old narrative of the Liberals being better economic managers could well enjoy a resurgence among this group — despite its extremely dubious foundations — and undermine a key demographic that voted for Labor at the last election.

It’s unlikely any swing to the Coalition would be enough to change the government, given its dire shortage of seats — indeed, the so-called sophomore effect, where new MPs improve their name recognition and do better in their second election, could give Labor a boost.

But things could get a lot tighter.