Household savings are tumbling, the economy grew less than expected and the inflation rate in the year to January was the second highest on record.
That’s the reality of Australia’s economy as of Wednesday and while the 0.5 per cent quarterly growth in GDP signals the country isn’t quite yet heading for a recession, it’s clear the cost of living crisis is biting.
It is also a signal interest rates – found to be partly responsible for the drop in household savings – could continue to rise.
Inflation rose 7.4 per cent in the year to January, new figures from the ABS revealed on Wednesday, well shy of the 8.1 per cent figure expected.
The Consumer Price Index indicator is also lower than the 8.4 per cent rise in the year to December.
Head of prices statistics at ABS Michelle Marquardt said while the latest inflation figure was a slight improvement, it was still the “second highest annual increase” since the start of the monthly CPI indicator series in 2019.
Treasurer Jim Chalmers said inflation remained the defining challenge of the economy and was the government’s primary focus, but that he was confident the worst of inflation is “behind us”.
“While inflation is higher than we’d like, we’re cautiously hopeful that it has peaked,” he said.
The most significant contributors to the annual increase in January were housing – with a 9.8 per cent rise, and food and non-alcoholic beverages, which experienced an 8.2 per cent rise.
Shadow treasurer Angus Taylor said the latest figures showed what all Australians already know – that they are struggling.
“The government has promised that they are going to try and find some kind of way to relieve some of these pressures, but the reality is we have seen no relief on these pressures at all,” he said.
Meanwhile, Australia’s Gross Domestic Product grew 0.5 per cent in the December quarter and by 2.7 per cent throughout the year.
It proved a weaker growth quarter than economists predicted and suggests the RBA could continue to hike up the cash rate.
Head of national accounts at ABS, Katherine Keenan, said the primary contributors to the GDP growth were the 0.4 per cent rise in total consumptions and 1.1 per cent rise in exports.
“Continued growth in household and government spending drove the rise in consumption, while increased exports of travel services and continued overseas demand for coal and mineral ores drove exports,” Ms Keenan said.
The National Accounts figures also show household spending grew 0.3 per cent in the quarter – the fifth consecutive quarter of growth, but that households are spending less on discretionary goods.
With that, however, came a fall in the household saving ratio – a fifth consecutive drop, from 7.1 per cent to 4.5 per cent.
The household saving ratio is at its lowest level since September 2017, with more of people’s income directed to servicing their mortgages.
“The fall was driven by increased interest payable on dwellings, income tax payable and increased spending,” Ms Keenan said.
Dr Chalmers said the figures within the National Accounts told the “story of 2022” and warned of the rocky year ahead.
“We knew that 2023 would be a challenging year for the economy, and we still expect that to be the case,” he said.
“But despite all of these challenges, the Australian economy still grew … faster growth than all of the major advanced economies, and it’s more than twice the growth of the OECD average.
“I think it’s an unfortunate sign of the times, that even in one of the best economies in the world here, our people are still under extreme pressure.”
He said the unfolding story of 2023 will be a “story of some substantial economic challenges” which can’t be “pretended away”.
“Interest rates are biting, higher inflation has been biting our economy and we’re not immune from global conditions, either,” he said.
“I’m confident that we can get through this.”
Mr Taylor also acknowledged the combined impact of rising inflation, rising interest rates, and rising taxation was a “real battle” for so many Australian households, and criticised the government for not doing more.
“We need an Australian government that is focused on the priorities of the Australian people, and the top priority right now is helping Australian households and businesses to make ends meet,” he said.
“That is clearly not the priority of this government.”
Macroeconomist Sean Langcake said there was little in today’s data which suggested Australia’s inflation problem was solved.
“The rebalancing of household spending away from goods and towards services continues to play out,” he said.
“Growth in spending on discretionary items continues to slow and the recovery in services consumption has largely run its course.
“Household spending will slow over 2023 as brisk inflation and higher interest rates squeeze real incomes and slow spending.”