Interest rates still failing to curb inflation or retail spending according to latest data

Two sets of data from the Australian Bureau of Statistics and the Australian Retailer Association indicated that inflation and household spending remain persistently high, despite efforts to curb these through interest rate rises.

The Australian Bureau of Statistics releases on 10 and 11th January 2023 for economic data to the end of November 2022 found that the monthly Consumer Price Index (CPI) indicator rose 7.3%.

All groups monthly CPI indicator rose 7.3% to the end of November 2022.

It cited housing as the most significant contributor to this, followed by food and beverages costs.

The influence of housing reflected the increasing construction costs off the back of supply-chain challenges. Supply issues similarly had a role in the increases in food and beverages costs.

Despite this, and hopes that interest rate increases would curb household spending, the latest data showed a surge in activity.

The ABS data to the end of November identified the black Friday sales as a significant bolster for activity. Retail turnover jumped 1.4%. In keeping with this, household spending for the year to 30 November 2022.

However it’s the data for December from the Australian Retailer Association that may raise particular concerns for the Reserve Bank in planning for their February meeting. They will want to see a decline in household spending as one of the indicators that interest rate measures are starting to have an effect which will eventually reach inflation numbers.

The Australian Retailer Association data showed $745.5 billion was spent in December, up by 8.6% in 2021. This was higher than anticipated.

Job vacancies and the unemployment rate are other key data indicators that the RBA watch. Vacancies did decline 5% to November 2022 but are 12% higher compared to the previous year. This suggests continued employment demand. Rising immigration figures may help to settle these numbers, but at this stage, it would suggest that unemployment figures won’t have dropped to the point that the RBA will be monitoring for.

Some takeaways from this data

Off the back of this, Russel Chesler, Head of Investments and Capital Markets at VanEck, believes the RBA is likely to increase rates by 0.25% in the February meeting and predict a 3.85% terminal rate by mid-2023.

He anticipates behaviour might start to change post the February meeting. He also notes that two-thirds of fixed rate loans will mature this year and another third in 2024.

“This means almost $500 billion of loans will start to attract rates that are 3-4% above what they are currently paying, effectively doubling property owners’ mortgage repayments. The post-pandemic purchasing boom could come to an abrupt halt in 2023,” Chesler says.

Chesler also suggests that Australia as a whole will continue to benefit from commodities in 2023, particularly as a result of China reopening.