RBA boss Michele Bullock said a bigger-than-expected lift in consumer spending could delay future interest rate cuts. (Source: Getty)
The Reserve Bank of Australia (RBA) boss has warned future interest rate cuts could be pushed back as Aussies pull themselves out of the cost-of-living crisis. Many Australians have been conservative about their spending as rent, mortgages, electricity, grocery shopping, and other costs have skyrocketed.
But new data has revealed this conservative approach appears to be waning, and people are becoming more financially confident. RBA governor Michele Bullock said this trend could end up backfiring for homeowners.
“We are seeing [spending] come back, and that’s welcome,” she said in Perth on Wednesday night.
“We’re seeing the private sector start to demonstrate a little bit more growth now, which I think is positive.
“What it means for future interest rates, I don’t know. All I would say is that, if anything, it’s probably a little stronger than we thought it would be.
“That’s good, but it does mean that it’s possible that if it keeps going, then there may not be any interest rate declines yet to come. But it all depends.”
The RBA had predicted spending would lift, especially after lowering the cash rate three times this year after it was held at a 13-year high of 4.35 per cent for 15 months.
It’s now at 3.60 per cent, and many have predicted another cut of 0.25 per cent will come in November.
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Australian Bureau of Statistics (ABS) data released on Wednesday could throw a spanner in those predictions.
Household spending jumped 0.9 per cent in the June quarter, which is a considerable lift from the 0.4 per cent increase from the previous quarter.
Essential spending jumped 0.5 per cent, however, non-essential purchases was boosted by 1.4 per cent.
Tom Lay, the ABS’s head of national accounts, explained what was driving the change between quarters.
“End of financial year sales and new product releases contributed to rises in discretionary spending on goods including furnishings and household equipment, motor vehicles and recreation and culture goods,” he said.
“Households took advantage of the proximity of Easter to ANZAC day to extend their holiday break, resulting in rises in discretionary services such as hotels, cafes and restaurants and recreation and culture services.”
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The economic lift was praised by Treasurer Jim Chalmers, who said it was a “welcome and substantial pick-up in growth” and far exceeded expectations.
“It is the equal-fastest quarterly growth rate in almost three years and the fastest annual growth rate in almost two years,” he said.
“Quarterly growth was double what it was in the previous quarter, following revisions. It’s a very encouraging outcome as some comparable economies such as Germany and Canada went backwards in the quarter.”
If there’s an increased demand for certain products or services, businesses can raise prices to accommodate the renewed confidence.
The RBA has been on a mission to bring inflation under control after it hit a high of 7.8 per cent in December 2022. It’s since fallen to 2.1 per cent.
Bullock feared that if inflation started to go up after many quarters of sustained decreases, the RBA might have to hold off providing more interest rate cuts.
Inflation spiked dramatically in the 12 months to July, but experts believe it’s not cause for alarm. (Source: ABS)
Inflation data is released monthly and quarterly, with the latter used more heavily by the central bank to determine the cash rate, as it’s a much broader view of how the economy is going.
The month-to-month readings can vary, and that’s what happened with the most recent report.
The ABS revealed inflation had jumped 2.8 per cent in the 12 months to July from 1.8 per cent a month earlier, which was the highest annual rate since July last year.
But Commonwealth Bank (CBA) economist Harry Ottley said the RBA wouldn’t likely be swayed by one-off changes like this.
“The RBA has previously cautioned against overreacting to monthly CPI volatility, and [the] data is unlikely to shift its cautious, data-dependent stance,” he said.
The central bank will meet this month to decide interest rates, however, it’s largely been predicted to be a hold.
It will then meet in November for the second-last gathering of the year, and the Big Four banks all believe this will be the next time there will be a drop in the cash rate.
ANZ: A 25 basis point cut will come in November, taking the cash rate to 3.35 per cent
CBA: A 25 basis point cut in November
NAB: A 25 basis point cut in November and another in February, taking the cash rate to 3.10 per cent by the beginning of 2026
Westpac: A 25 basis point cut in November, and another in February
November is tipped as the biggest potential because there will be another quarterly inflation reading by then, and if inflation’s current downward trend continues, then it could give the RBA enough confidence to drop the rate.
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