While consumption trends are welcome, they could stifle dovish contingent of Monetary Policy Board
Reserve Bank of Australia (RBA) Governor Michele Bullock (pictured) has cautioned that anticipated interest rate cuts could be postponed if the consumer pending trends continues their current trajectory.
Speaking in Perth on Wednesday evening, Bullock addressed the recent uptick in household consumption, which exceeded economists’ expectations and pushed gross domestic product (GDP) growth to 0.6% for the June quarter.
“For some time we have been predicting that the Australian consumer will start to spend a bit more, and they are – slowly,” Bullock said during a question and answer session after her speech on artificial intelligence in banking.
She explained that rising real disposable incomes and climbing house prices have contributed to this shift in consumer behaviour.
The latest national accounts revealed that Australians are spending more on non-essential items, including cars and furniture, helping to lift annual GDP growth to 1.8%.
Bullock noted: “We are seeing it come back, and that’s welcome. We’re seeing the private sector start to demonstrate a little bit more growth now, which I think is positive.”
However, she made it clear that the RBA is closely monitoring these developments.
“What it means for future interest rates, I don’t know. All I would say is that, if anything, it’s probably a little stronger than we thought it would be. That’s good, but it does mean that it’s possible that if it keeps going, then there may not be any interest rate declines yet to come. But it all depends,” she said.
Data released on Thursday shows household spending rose 0.5% in July, following a 0.3% increase in June. Annual growth reached 5.1%, the fastest pace since November 2023.
Discretionary spending climbed 0.4% in July, up 4.6% year-on-year, with services such as health, transport, and hospitality seeing notable gains. Meanwhile, essential spending grew 0.8% in July, up 5.9% over the year.
