Highlights

  • RBA Assistant Governor Sarah Hunter acknowledged that inflation and higher interest rates affect Australian households differently, particularly renters and mortgage holders.
  • Higher prices for food, fuel, clothing and everyday services continue to create financial challenges for households without home loans.
  • While mortgage holders experience the direct effects of higher borrowing costs, renters can face substantial pressure from rising living expenses.
  • The RBA continues to prioritise reducing inflation while monitoring household financial conditions and employment.

Australia's cost-of-living pressures extend beyond mortgage repayments, with renters and lower-income households also experiencing the financial consequences of persistent inflation.

In an interview published on 25 October 2026, Reserve Bank of Australia (RBA) Assistant Governor (Economic) Sarah Hunter discussed how inflation and monetary policy affect different sections of the Australian population.

While higher interest rates directly increase borrowing costs for many mortgage holders, Hunter emphasised that households without mortgages are also exposed to rising prices across essential goods and services.

Her remarks highlighted the uneven financial burden of inflation and the challenges faced by policymakers seeking to restore price stability.

Why Renters Are Particularly Exposed to Rising Living Costs

Renters can face financial pressures that differ from those experienced by homeowners.

Unlike mortgage holders, renters do not directly experience increases in mortgage repayments when the RBA raises interest rates. However, they remain exposed to changes in rent, food prices, transportation costs and other household expenses.

Hunter noted that long-term renters are often among the households dealing with significant cost-of-living difficulties.

She explained that some renters may never own a home, while others have relatively limited financial resources to absorb unexpected increases in everyday expenses.

The Assistant Governor acknowledged the broader impact of inflation on these households, stating that high inflation is "really, really difficult to deal with."

Her comments illustrated why the RBA considers reducing inflation important for households regardless of their borrowing arrangements.

How Inflation Affects Essential Household Spending

Inflation influences living standards by increasing the amount households need to spend on goods and services.

Hunter identified food, petrol, clothing, dining and recreational activities as examples of expenses that have become more costly over recent years.

For households with limited disposable income, increasing prices for essential products can reduce the amount available for other expenditure.

These pressures can affect spending decisions even where households have no direct exposure to mortgage interest rates.

The latest international oil shock has added another dimension to the cost-of-living challenge.

According to Hunter, higher petrol and diesel prices are already affecting Australian consumers, while additional cost pressures are beginning to emerge throughout domestic supply chains.

This creates further uncertainty for household budgets as businesses respond to changes in transportation and production costs.

Mortgage Holders Face a Different Financial Burden

Although renters experience inflation through everyday expenses, mortgage holders are more directly affected by changes in lending rates.

Hunter explained that an increase in the RBA's cash rate can flow through to some mortgage repayments relatively quickly.

Higher repayments reduce the disposable income available to affected borrowers, potentially influencing their consumption and saving decisions.

The RBA has implemented four interest rate increases during 2026, according to Hunter's remarks.

She acknowledged that some borrowers were experiencing significant financial difficulties, including circumstances in which households might consider selling their properties.

However, the Assistant Governor indicated that the RBA had not identified widespread systemic mortgage distress.

She also noted that many mortgage holders had entered the current period with savings or financial buffers that could help them manage higher repayments.

Why the RBA Continues to Use Interest Rates

The different experiences of renters and mortgage holders illustrate one of the challenges associated with monetary policy.

Interest rates influence inflation through several channels, including household borrowing, saving behaviour, business investment and overall economic demand.

Hunter acknowledged that these effects are not distributed equally across the population.

However, she explained that monetary policy is intended to reduce inflation across the broader economy rather than address the circumstances of individual household groups.

The RBA remains concerned that demand in Australia exceeds the economy's sustainable supply capacity.

Higher interest rates are intended to moderate that demand and reduce the risk of prolonged inflation.

Although monetary tightening can create immediate financial pressure for borrowers, persistent inflation also affects households with limited savings and relatively fixed incomes.

Cost-of-Living Pressures and Household Financial Resilience

Household resilience depends on several factors, including income, savings, debt commitments and essential expenditure.

Mortgage holders with accumulated savings may have greater flexibility to manage higher borrowing costs than borrowers with limited financial reserves.

Similarly, renters with smaller discretionary budgets may find it difficult to accommodate increases in essential living expenses.

Hunter referred to the serious financial decisions facing some families, including difficulties meeting mortgage payments and purchasing sufficient food.

These experiences demonstrate why economy-wide financial indicators may not fully reflect the challenges faced by individual households.

The RBA therefore considers both broad economic conditions and information gathered through its engagement with businesses and community organisations.

Can Lower Inflation Improve Household Purchasing Power?

Reducing inflation can help stabilise the pace at which living costs increase.

However, lower inflation does not necessarily mean that prices return to earlier levels. Instead, it generally means that prices are increasing more slowly.

For households, sustained lower inflation can make expenditure more predictable and reduce the risk of repeated sharp increases in essential expenses.

Hunter emphasised that the RBA's objective is to restore an environment in which inflation is low and stable.

The central bank is also monitoring employment and economic activity to avoid an unnecessarily severe slowdown while pursuing that objective.

Key Insights

The RBA's latest remarks highlight how inflation and higher interest rates create different financial pressures across Australian households.

Mortgage holders can face immediate increases in borrowing costs, while renters remain exposed to rising prices for essential goods and services.

Hunter emphasised that reducing inflation is important for both groups, particularly households with limited capacity to absorb further cost increases.

Future developments in household consumption, employment, rental expenses, energy prices and inflation will remain important in assessing Australian living standards and the wider economic environment.

Q1. How does inflation affect Australian renters?

Renters experience inflation through higher costs for housing, groceries, transportation and other essential goods and services.

Q2. Why are mortgage holders particularly affected by higher interest rates?

Higher lending rates can increase mortgage repayments, reducing disposable income and affecting household spending decisions.

Q3. What did the RBA say about lower-income households?

Assistant Governor Sarah Hunter acknowledged that households with limited financial resources, including many long-term renters, can experience significant difficulties when living costs increase.

Q4. Does reducing inflation mean everyday prices will fall?

Not necessarily. Lower inflation generally means prices are rising more slowly rather than returning to their previous levels.

Q5. What is the RBA trying to achieve through higher interest rates?

The RBA is seeking to moderate economic demand and bring inflation towards a sustainably low and stable level while maintaining its employment objective.