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Australians Spending More, Buying Less Amid Cost-of-Living Pressures

Strategic Insights

— 1 min read

Australians are expending more but consuming less than in 2022, highlighting the intense pressure of living costs on households before the Reserve Bank of Australia's interest rate decision on Tuesday. Economists and financial markets uniformly expect the RBA board to drop the official cash rate from 3.85% to 3.6%. The latest quarterly consumer price report showed inflation sinking to 2.1%, which, along with the RBA's preferred underlying measure, fell to 2.7%. This decrease in inflation has led to a widespread expectation of a rate cut.

Key Takeaways:

  • Australians are spending 22% more than three years ago, but prices have climbed by roughly the same amount, keeping total dollars spent in the economy the same.
  • After adjusting for inflation and putting it in per person terms, Australians on average are buying 5% less now than they were in early 2022.
  • The chief economist of Deutsche Bank, Phil O'Donaghoe, expects the monetary policy board's decision on Tuesday to be a unanimous vote in favor of a cut.
  • Homeowners with a variable mortgage can expect their interest rate to drop below 5.5% if banks pass on the cut in full.
  • Data insights director at Canstar, Sally Tindall, expects over 30 lenders to offer at least one variable rate under 5.25% and CBA's lowest rate could hit 5.34%.
  • The RBA is widely expected to drop the cash rate at the next interest rate decision meeting, despite dashing strong expectations last month.

Statistics:

  • Total household consumption is 22% higher than three years ago.
  • Prices have climbed by roughly the same amount over the past three years.
  • After adjusting for inflation, Australians on average are buying 5% less now than in early 2022.
  • Inflation has sunk to as low as 2.1% in the latest quarterly consumer price report.
  • The RBA's preferred underlying measure of price growth has fallen to 2.7%.
  • The official cash rate is expected to be dropped from 3.85% to 3.6%.

Sources:

  • [1] The Australian, "Australians Spending More, Buying Less Amid Cost-of-Living Pressures", [2] Australian Bureau of Statistics, Consumer Price Index, [3] Deutsche Bank Australia, Chief Economist Phil O'Donaghoe, [4] Canstar, Data Insights Director Sally Tindall

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