The Australian economy continues to show signs of resilience despite higher inflation and five consecutive interest rate rises.
An increase in household spending and exports continue to underpin the economy which grew 0.9 percent in the June quarter for an annual growth rate of 3.6 percent.
Spending on cafes, restaurants and travel surged, helping the unemployment rate which is at a 48-year low, but it will not moderate inflationary pressures.
Higher mortgage rates may have started to bite, but the effects of climbing interest rates are only just starting to be felt.
“Households increased spending on domestic and international travel as COVID-19 restrictions further eased and international borders remained open. While spending on transport grew strongly, households were still only spending two thirds of what they did pre-pandemic,” the Australian Bureau of Statistics said.
Reserve Bank of Australia (RBA) Governor Philip Lowe is eager to bring inflation down to its 2-3 percent target range from its 21-year high of 6.1 percent without driving the economy into negative territory. The central bank expects GDP growth to slow as inflation and further interest rate rises crimp activity.
This month’s 0.5 percentage point increase took the official cash rate to 2.35 percent – its highest level since December 2014. Dr Lowe signalled a slower pace of increases was coming, adding that the RBA would continue to battle the “scourge” of high inflation.
Rising inflation and interest rates have unnerved financial markets with the S&P/ASX 200 down around 8 percent in 2022 which has impacted returns for superannuation funds. Regardless, Australia’s largest listed companies recently posted healthy profits in the 2021/22 financial year earnings season, although the likelihood of a slowing economy will temper earnings growth in coming months.
