Household savings are tumbling, the economy grew less than expected and the inflation rate in the year to January was the second highest on record.
That’s the reality of Australia’s economy as of Wednesday, and while the 0.5 per cent quarterly growth in GDP signals the country isn’t quite yet heading for a recession, it’s clear the cost-of-living crisis is biting.
It’s also a signal interest rates – found to be partly responsible for the drop in household savings – could continue to rise.
Inflation rose 7.4 per cent in the year to January, new figures from the ABS revealed on Wednesday, well shy of the 8.1 per cent figure expected.
The Consumer Price Index indicator is also lower than the 8.4 per cent rise in the year to December, meaning it’s likely inflation has peaked.
Head of prices statistics at ABS, Michelle Marquardt, said while it was a slight improvement, it was still the “second highest annual increase” since the start of the monthly CPI indicator series in 2019.
The most significant contributors to the annual increase in January were housing – with a 9.8 per cent rise, and food and non-alcoholic beverages with an 8.2 per cent.
Inflation could have peaked, but the national accounts suggest more interest rate hikes could be on the cards. Picture: NCA NewsWire / Nicholas EagarAustralia’s inflation rate in the year to January is the second highest on record. Picture: ABS
Meanwhile, Australia’s Gross Domestic Product grew 0.5 per cent in the December quarter and by 2.7 per cent throughout the year.
It’s a weaker growth quarter than economists predicted, and suggests the RBA could continue to hike up the cash rate.
Head of national accounts at ABS, Katherine Keenan said the primary contributors to the GDP growth were the 0.4 per cent rise in total consumptions and 1.1 per cent rise in exports.
“Continued growth in household and government spending drove the rise in consumption, while increased exports of travel services and continued overseas demand for coal and mineral ores drove exports,” Ms Keenan said.
The National Accounts figures also show that household spending grew 0.3 per cent in the quarter – the fifth consecutive quarter of growth.
With that, however, came a fall in the household saving ratio – a fifth consecutive fall, from 7.1 per cent to 4.5 per cent.
The household saving ratio is now at its lowest level since September 2017.
“The fall was driven by increased interest payable on dwellings, income tax payable, and increased spending,” Ms Keenan said.
Household savings have tumbled below pre-pandemic levels. Picture: ABS
Macroeconomist Sean Langcake said there was little in today’s data that suggested Australia’s inflation problem was solved.
“The rebalancing of household spending away from goods and towards services continues to play out,” he said.
“Growth in spending on discretionary items continues to slow and the recovery in services consumption has largely run its course.
“Household spending will slow over 2023 as brisk inflation and higher interest rates squeeze real incomes and slow spending.”