Following the fastest increase to the cash rate since the 1990s, many have been quick to lament both the government and RBA for not acting in the best interest of Aussies nationwide. 

In recent times, signals have been provided by datasets to show that the Australian economy is beginning to taper, yet policy makers continue to throw curveballs leaving many to ask the question if the powers-at-be truly understand what is happening on ground zero. 

Most recently, the RBA made the ‘surprise’ decision to increase the cash rate in May, with the result being a dive in consumer confidence back to near-recessionary levels not seen since the early 1990s. 

A key cog to the answer lies in how those policy makers interpret aggregate data, as opposed to real-life distribution measures, to shape public policy - whether it be monetary or fiscal.

Speaking to Savings.com.au, PRD Chief Economist Asti Mardiasmo (pictured below) says the disconnect between the government, RBA and the general public, comes from the notion that there is one solution or one policy that is meant to apply to all Australians, yet we all have different circumstances.

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“The public sees, experiences, or hears different things from family, friends and colleagues, but they can also be seeing something contrasting – all of which creates confusion as to what is actually going on,” Dr Mardiasmo said. 

“A good example as to what is going on, is that we know the cash rate has increased so mortgage payments have increased.

"We see people on TV being forced out of their homes and living in a tent, which enforces the notion that cash rate increases have really impacted people, yet at the same time we could be walking past or heading to a fine dining restaurant for dinner and it's fully booked. Seeing these contrasting realities can be quite confusing to people.

“It can also come from the fact that many people do not have a full understanding of the intricacies of public policy making. 

“Many are not aware that decisions are made at an aggregate level, with distribution parcels in consideration. They only see one decision; and more often than not the most devastating impact it has on one or two parcels of the distribution; so it creates a distorted reality that leads up to the sense of disconnect.”

Dr Mardiasmo notes from a data perspective, real-life distribution measures are only turning very slightly, which means that either a super shift of one distribution measure is required or for all different distributions to turn at the same time - and by the right amount - to show up in aggregate data. 

“Sometimes there are too many parcels of distribution, which can harm policy making,” she said.

“If only one parcel is impacted, and not by much, then the result is a stable aggregate. This is the basis for policy making, which creates a ‘majority rules’ mentality, and helps foster that disconnect.” 

With this in mind, much has been discussed in recent times by both the RBA and economists alike surrounding the accumulated ‘savings buffers’ mortgagees have accumulated over the past three years to weather the storm of interest rate rises and high inflation. 

Given the proportion of savings buffers, despite many Aussies waving the white flag to the RBA to stop cash rate increases, this distribution parcel is deemed not significant enough to impact decisions made at the aggregate level.

Eliminating disconnect through the public lens

With the disconnect seemingly growing by the day particularly between the RBA and the general public (many calling for Dr Phil Lowe’s head), many are wondering how such disconnect can be improved. 

Dr Mardiasmo believes while there are a few measures that can be put in place, with acknowledgement, education and transparency the true keys. 

“Not many people understand the Statement of Monetary Policy documents (published each quarter) and the graphs within it, considering it is 70-80 pages long,” she said.

“For some, even the monthly cash rate statements can be misunderstood. 

“The only thing most people understand is the fact that cash rates are going up, which means more mortgage repayments are squeezing out our money even more, alongside high cost-of-living, thus tone deaf policy.” 

Dr Mardiamso notes despite the resounding commentary surrounding the cash rate, the general public fail to comprehend that our cash rate is still relatively low compared to other developed countries and that increasing cash rate is a world-wide phenomenon. 

Looking at the cash rate compared to other advanced economies, the United States currently has a funds or cash rate of 5.25%, the United Kingdom has a cash rate of 4.5% and our neighbours across the ditch have a cash rate of 5.5%.  

“They don’t understand, or know, that the RBA is well aware of the different demographics that have loans and how it impacts each demographic; however the data has not shown this impact at an aggregate level,” she said. 

“Most people are not aware that policy is created at an aggregate level, which means they will push forward no matter if a particular group of people are suffering more than others.” 

Dr Mardiasmo says the same can be said with the perceived disconnect between the public and the government with regards to key policy such as the Federal Budget.

“If we do a survey of how many Australians have read the Federal Budget word by word, it would be a small group of people as it’s a long document for anyone to really fully digest” she said. 

“Generally, whenever I speak to people or give a presentation, once I go through the ins and outs of why the RBA or Government makes a decision, based on a specific dataset with considerations, the crowd will typically let out a uniform “ah I see’ - they may not agree with it, but at least they can see through the fog. 

“So at least there is a mutual understanding of ‘why’, which is incredibly important, to build towards the same path.

“Therefore public acknowledgement of the differing impacts, with greater clarity in the form of an easily digestible information package, and greater transparency in both how and why these policies were made, will greatly assist some of the disconnect. 

“It may not result in the general public all agreeing, but at least we can temper some of the disconnect and have a mutual understanding of ‘why’.” 

Would more data help or simply hinder this disconnect? 

The ABS has attempted to answer this question, with the introduction of a publicly available Monthly Consumer Price Index in August last year to coincide with inflation figures printed quarterly under the Consumer Price Index. 

At the time, Australian statistician Dr David Gruen said the indicator would be an important tool for policymakers, to provide a timelier guide to inflation in Australia, with the quarterly measure continuing to remain Australia’s key measure. 

Despite stating that quarterly inflation will remain the key measure, the RBA in recent times has adopted the monthly inflation print as a determinant to aiding in monetary policy decisions. 

Cases for and against additional data can be made, however Dr Mardiasmo says the powers at be would need to be increasingly selective as to the data that is dis-aggregated. 

“Yes in the sense that we do need a better scope of data, for example a cash flow and home loan graph that does not only provide mortgage offset account level as an aggregate, but one that provides this for different types of borrowers,” she said.

“No, in the sense that we also have to be very careful as to what type of data we dis-aggregate, so that we do not create confusion. 

“Inflation rates for example – as of March quarter 2023 was 7.0% but on a monthly basis for March 2023 it was 6.3%. This poses the question ultimately of which one do you use? 

“The public can get confused, and thus even more frustrated with policy. The psychology of seeing a 7 and a 6 (think $729 vs $689 at the shops) results in different reactions.

“Therefore we would have to be really selective on which graph or data we dis-aggregate.”

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