Politicians are increasingly vocal about the Reserve Bank of Australia’s economic policy and its hesitation to lower interest rates despite public pressure. But what do the numbers really show?
Treasurer Jim Chalmers has noted that global uncertainty and rising rates are “smashing the economy.” Former Treasurer Wayne Swan has gone further, accusing the RBA of prioritizing “economic dogma over rational economic decision-making,” which he claims is hurting households and driving the economy backward.
Australian mortgage holders and renters have yet to see any relief, following 13 successive interest rate rises since May 2022.
The Reserve Bank’s Position and Its Impact
The RBA Board decided to keep the official cash rate steady at 4.35% during its September meeting, citing persistently high inflation over the past 11 quarters. With the Consumer Price Index (CPI) rising 3.9% over the year to the June quarter, it remains above the RBA’s target range of 2-3%.
However, it’s not just the inflation numbers that are causing politicians to weigh in. RBA Governor Michele Bullock has made it clear that “it is premature to be thinking about rate cuts,” and they do not foresee a rate reduction in the near term.
The Australian Bureau of Statistics (ABS) June Quarter National Accounts reveal a troubling economic landscape. Per capita GDP has declined for the sixth consecutive quarter, falling by -0.4% to -1.5%—the longest stretch of weakness ever recorded.
Household Spending and Savings at a Low
Household spending fell by -0.2% in the quarter, the weakest growth rate since the Delta-variant lockdown in September 2021. Spending on discretionary items, especially in travel and hospitality, declined significantly, with expenditures on hotels, cafes, and restaurants down 1.5%. Even grocery spending has taken a hit, falling by -0.1% as households tighten their budgets.
The household savings ratio is also at its lowest since 2006, with households saving just 0.9% of their income over the year. This indicates that income growth is not keeping pace with household spending.
Economic Growth Driven by Government Spending
Despite the challenges, the Australian economy did grow by 0.2% in the quarter, marking the eleventh consecutive quarter of growth. However, this growth was mainly driven by government spending, which increased by 1.4%. Commonwealth social assistance benefits and state government expenditures contributed significantly to this modest growth, while subdued household demand detracted from it.
The RBA’s Stance on Interest Rates
The RBA is walking a tightrope, aiming to bring inflation back to its target range by the end of 2025 while preserving gains in the labour market. While prices for many goods have stabilised as supply chain disruptions ease, key problem areas remain—particularly housing costs and services. Housing cost growth is driven by rising construction expenses and rent, while service costs remain high due to wage increases, lower productivity, and higher business costs.
The RBA stresses that inflation hits the most vulnerable households hardest, particularly those with lower incomes who spend a larger portion of their income on essentials like food, utilities, and rent. Younger and lower-income households have been especially affected by the rising cost of living.
Need Help Navigating the Economic Landscape?
If you’re feeling the pressure of rising interest rates and economic uncertainty, Walker Hill is here to help. Our expert team can guide you through this complex financial landscape, from managing your investments to exploring refinancing options with Walker Hill Finance. Contact us today to discuss how we can help you take control of your finances: support@walkerhill.com.au
