Fears Australia’s inflation crisis is about to get worse as Australians continue to spend

Australia’s inflation crisis is likely to worsen with consumers saving less and spending more despite the most severe interest rate hikes on record.

The new national accounts data showed that households saved just 6.9 percent of their income in the September quarter, down from 8.3 percent in the June quarter.

The Australian Bureau of Statistics said: ‘We spend more and save less’.

Consumer spending is growing despite the Reserve Bank of Australia, since May, raising interest rates eight times to a new 10-year high of 3.1 percent.

The eight consecutive increases, following Tuesday’s rate hike, were the most followed since the RBA began publishing a target cash rate in 1990.

Australia’s inflation crisis is likely to worsen with consumers saving less and spending more despite the most severe interest rate hikes on record. The new national accounts data showed that households saved just 6.9 percent of their income in the September quarter, up from 8.3 percent in the June quarter (pictured, diners in Double Bay in the eastern suburbs of Sydney)

The ABS data covered September, during the RBA’s first five rate hikes, and coincided with an annual inflation rate that hit a 32-year high of 7.3 percent.

ANZ senior economist Felicity Emmett said the national accounts data was still evidence that inflation would worsen.

“While this data is now a bit dated and does not fully reflect the impact of the 300 basis point cash rate increase over the past eight months, it does show that inflationary pressures increased during the third quarter,” it said.

Australia’s economy grew by 0.6 percent in the September quarter, with gross domestic product expanding by a strong 5.9 percent for the year.

EY chief economist Cherelle Murphy said strong consumer spending was a major factor underpinning Australia’s economic growth.

“Australian consumer power boosted July, August and September, adding another $3.2 billion to the Australian economy,” he said.

Consumer spending rose 1.1 percent in the September quarter and 11.8 percent for the year.

Spending on eating out rose 5.5 per cent in the quarter, compared with 13.9 per cent for transport services and 10.1 per cent for cars, as Australia is no longer in lockdown.

Consumer spending is growing despite the Reserve Bank of Australia, since May, raising interest rates eight times to a new 10-year high of 3.1 percent (pictured, homebuyers Sydney Woolworths)

The eight consecutive interest rate hikes, following Tuesday’s rate hike, were the most followed since the RBA began publishing a target cash rate in 1990.

But AMP Capital senior economist Diana Mousina said the rate increases would eventually cause a drop in consumer spending, noting that the national accounts data was several months old.

“We expect these savings to peter out over the next few quarters, which will influence consumer spending,” he said.

Commonwealth Bank Australian economics chief Gareth Aird said consumers in 2023 will no longer be able to use their lockdown savings to the same extent as they did this year.

“The reduction in the savings rate to close to its pre-pandemic average means that household spending power from here is more in line with income growth than with savings accumulated during the pandemic,” he said.

“The very downbeat levels of consumer confidence imply that the tailwind in the economy of pent-up savings has probably run its course.”

AMP, like the Commonwealth Bank, expects the RBA to raise rates once more, in February, to 3.35 percent.

But Westpac and ANZ expect an 11-year high cash rate of 3.85 percent for May, with three more rate increases in early 2023.

The Reserve Bank still expects inflation by the end of 2022 to reach 8 percent, a level not seen since 1990.