Australia’s central bank says meetings with industry and community groups suggest rising prices and elevated interest rates are weighing on consumption and broader economic growth, according to internal documents dated from September through to November.
“Retailers report that consumers, particularly those facing higher cost-of-living pressures, are more budget conscious in their spending,” the Reserve Bank said in a September 18 liaison update released under a Freedom of Information request on Wednesday.
It said domestic tourism demand had slipped from high levels and a further softening is anticipated due to cost pressures and elevated rates.
The release came shortly after Prime Minister Anthony Albanese flagged Wednesday that the Government is aiming to provide additional relief to households to lower their living expenses. It wants to build on last year’s program that sought to ease soaring energy costs and curb inflation pressures, he said.
“Our priority will be to provide cost of living relief whilst taking pressure off inflation,” Mr Albanese said.
He directed his departments of Treasury and Finance “to come up with further propositions that we’ll consider in the lead-up to the May Budget”.
The RBA documents showed an October 2023 summary of retail liaison findings that “for a few quarters now, consumers have continued to trade down to cheaper products, or purchased fewer items, due to cost-of-living pressures”.
Central bank liaison also showed that private sector wage growth appeared to have stabilised at “around” 4 per cent, reiterating estimates in the RBA’s latest quarterly statement on monetary policy in November.
Australia has to date avoided the sort of wage-price spiral that has been seen in other economies. The RBA has raised borrowing costs by 4.25 percentage points since it began tightening in May 2022, about one percentage point less than the US and New Zealand even though inflation pressures in the economies have been similar.
The bank has been cautious due to the high level of household debt in Australia and the rapid pass-through of hikes given most mortgages are on variable rates. Money markets and many economists see RBA tightening as all-but done.
The FOI documents also contain a November 16 email to governor Michele Bullock and James Holloway, deputy head of the RBA’s Economic Analysis Department, from an unidentified sender providing information ahead of a meeting with the Australian Council of Social Service.
The email highlighted that broad themes heard from community services organisations had been similar for much of 2023.
“Cost-of-living pressures remain acute for their constituents,” it said. “More people than usual are seeking support from community services organisations, including wage earners and households with mortgages who have sought food support.”
Bloomberg