We are hearing and reading about rising inflation and even stagflation daily it seems. Do we remember though the last time we saw inflation rise to such heights here in Australia? For those of you who can remember it was back in the 70’s and early 80’s. Coincidently it was when mullets were last in fashion. Think David Bowie as Ziggy Stardust, Rod Stewart, and Paul McCartney, they all had mullets in the 70’s and by the early 80’s they were everywhere. As we have seen with sports stars like golfer Cameron Smith and many of our NRL and AFL footballers, mullets are definitely back in a big way and the old ‘business in front, party in the back’ has again coincided with rising inflation, something this generation has never seen before.
Take it from someone who was here the first time around, memories of Paul Keating stating famously ‘This is the recession we had to have’ has many of us in our 50’s and 60’s (what I call the Sandwich Generation), quietly worried as we remember how bad it was back then, and what that meant for cost of living and average mortgage rates. Not to scare you but at its worst, interest rates reached 18% so imagine what that would do to your average monthly mortgage payment compared to now.
Is it the same though and should we be worried? Just like myself as a father with daughters dating millennial boys with mullets, it is a scary thought.
Luckily, it’s not the same, as back then it was commonly known as ‘stagflation’ (stagnant + inflation) and meant high inflation was with us for a long 10 years. Why it won’t be the same this time round is in my view for a few very simple reasons even though it hasn’t stopped the naysayers predicting another ‘stagflation’ scenario.
Back then stagflation meant we had the unusual situation of low economic growth, high unemployment with high inflation. We also had a Reserve Bank not really in control of the situation and a lot more political influence (interfering) over their decision making.
It’s very different this time round with the Reserve Bank in my view, acting far more responsibly and putting the brakes on now. Yes, there will be some belt tightening but for a temporary period of time I believe such as 18 months, and not the 10 years of last time. We also have the lowest unemployment rates since the early 70’s so that is definitely good news and again goes against this ‘stagflation’ concept. A more likely scenario is mortgage rates reaching around 5% rather than double digits of the early 80’s, and inflation being brought under control in the short term, not long term. We may well see mullets being around a bit longer than high inflation this time around which is good news for anyone with a mortgage, but maybe not for a father with millennial daughters.
Article by Marc Bineham – Money coach, speaker and award-winning author of The Money Sandwich