Australia gauges suggest households, firms weathering rate rises
AUSTRALIA’S consumer sentiment edged up and business confidence further strengthened, suggesting the nation’s economy is so far weathering the sharpest policy tightening in a generation.
Westpac Banking’s index of consumer sentiment rose 3.9 per cent to 84.4, while still highlighting pessimists easily outweigh optimists, a report showed on Tuesday (Sep 13). A National Australia Bank (NAB) survey of firms found confidence and conditions – which include profits, sales and jobs – both advanced.
The uptick among households and persistent strength of business sentiment support the Reserve Bank’s assessment that a very tight labour market and solid consumption will keep the economy ticking over. The central bank last week delivered its fourth consecutive half percentage-point hike to take the cash rate to 2.35 per cent, joining global peers in trying to cool consumer prices.
“Inflation and rising interest rates will eventually begin to weigh on household budgets more materially, slowing the pace of consumption growth and in turn helping to ease inflationary pressure,” said NAB chief economist Alan Oster. “So far, however, it appears this dynamic is yet to take hold.”
Policymakers also expect the A$2.2 trillion (S$2.1 trillion) economy will slow to less than 2 per cent growth in 2023 from a forecast 3.2 per cent this year.
The Reserve Bank of Australia (RBA) has raised rates by 2.25 percentage points since May when the cash rate stood at a record-low 0.1 per cent. Inflation accelerated to 6.1 per cent in the second quarter and is expected to peak at a little below 8 per cent late this year, before decelerating in 2023 as higher rates weigh on activity.
Separate data Tuesday from the Commonwealth Bank of Australia (CBA) showed an increase in spending intentions in August in health and fitness, home buying and motor vehicles. CBA, the nation’s largest lender, combines its own payments data with Google trends to estimate monthly household spending.
CBA chief economist Stephen Halmarick also highlighted “significant lags” between RBA hikes and when higher mortgage payments hit household budgets, warning consumer spending will soften in the months ahead. BLOOMBERG
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