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Cashbacks encourage spending amid high inflation: Rate Money

by Kate Aubrey10 minute read

While the central bank beats inflation by increasing the cash rate, Rate Money fears lenders’ cashback offers are contributing to inflationary pressures.

As inflation hit a 33-year high in the December quarter 2022, reaching 7.8 per cent, largely fuelled by spending on restaurants and travel, the stakes are high that the central bank will respond on Tuesday (7 February) by increasing the interest rate.

It’s widely known that the central bank’s main mechanism to bring back inflation between the 2–3 per cent target range and slow consumer spending is through increasing the interest rate.

Thus, with a cash rate at 3.1 per cent and consumer spending still circulating, many economists have tipped further hikes to come.


Contrary to the monetary policy strategy to reduce demand, the chief executive at mortgage manager Rate Money, Ryan Gair, is disgraced with lenders offering large cashback offers that encourage churn and spending.

At a time when competition in the lending industry is high, given the cost to borrowing, lenders are sweetening the deal by offering customers large cashback incentives up to $10,000 in some cases.

Mr Gair said lenders are effectively “buying business” with cashback offers, which was not only “hurting” the industry but also creating a “false economy” and adding towards inflation.

“If you’ve got banks and lenders saying heres $5,000 in your account, [borrowers are] going to go and spend it,” Mr Gair said.

“History has shown that when consumers are given cash bonuses, a huge proportion will spend it rather than saving or putting it towards paying down debt.”

While the pandemic saw a large increase in savings, as travel and spending slowed due to lockdowns, its believed Aussies have exhausted this $200 billion savings buffer and ramped up spending.

The latest inflation figures showed that discretionary spending increased by 2.6 per cent in the December 2022 quarter.

“We have a spending problem here in Australia and we have an inflation problem, Mr Gair said.

“Cashback promotions the banks are offering are doing more harm than good. Consumers will be pocketing the cash and buying new TVs, gadgets or toys, in a nutshell, non-essentials. In the long term, it is creating more inflation.”

Mr Gair fears that by encouraging spending and driving up inflation, this will in turn contribute to rising interest rates.

He said a better solution would be to have incentives for loyal customers, rather than upfront cashback offers, or at the very least, there should be caps on the amount of cashback offers available.

Find out more about the cashback issue in the February edition of The Adviser, out next week!

[Related: Brokers fuming over ‘unfair’ clawbacks]

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