Economic Outlook

Outlook 

Elevated “home grown” inflation. primarily caused by high wages growth and falling labor productivity. is Australia’s most pressing near-term economic challenge. Normally, this would mean tight monetary policy remains and a further rate increase in February can’t be ruled out. The December-quarter CPI reading due on Jan. 31 is critical.

The surprising economic resilience through 2023 is fading fast and will roll into 2024 as the lagged effects of a cumulative tightening of 4.35% in official interest rates and high and rising nondiscretionary cost-of-living expenses drive a contraction in real household disposable income. The impact of a sharp rise in immigration has driven negative readings of per-capita GDP in the March, June, and September quarters. Trimmed mean inflation eased slightly in the year-ended October to 5.2% and pleasingly the trend is down, but there is still work ahead in 2024. Disturbingly the non-discretionary (necessities) segments are the cause of the ongoing inflation. Food and non-alcoholic beverages up 5.3%; housing up 6.1%; health up 6.3%; transport up 5.9%; and insurance and financial services up 8.6%, are all increasing at a pace above the trimmed mean.

Nondiscretionary segments are growing at a much lower pace, including clothing and footwear down 1.5%; furnishings, household equipment, and services up 0.4%; and recreation and culture, including holiday travel and accommodation, up 2.7%.

Article written 15 December 2023.

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