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Economics update | December 9, 2022
09 Dec 2022
RBA raises cash rate by 25 basis points
The Reserve Bank Board increased the cash rate by a further 25 basis points at its meeting earlier this week. This is the eighth consecutive increase since May and takes the cash rate to 3.1 per cent. The Reserve Bank also signalled that inflation is too high and that further rate rises are likely.
The RBA’s decision follows a decrease in monthly CPI to 6.9 per cent for the year to October, down from 7.3 per cent in September. The dip in the CPI, along with retail turnover falling 0.2 per cent in October, suggests the interest rates rises are beginning to influence consumer spending.
GDP rose 0.6 per cent for the quarter and 5.9 per cent for the year
The release of ABS National Income, Expenditure and Product shows the extent the Australian economy has weathered domestic and international challenges, with GDP recording a 0.6 per cent increase for the quarter and 5.9 per cent for the year. This was the fourth consecutive quarter of economic growth, albeit a little weaker than expected and a drop from the 0.9 per cent recorded in the June quarter.
Household spending rose 1.1 per cent for the quarter and contributed 0.6 percentage points to GDP. This rise was largely driven by spending on transport services (+13.9 per cent), vehicle purchasing (+10.1 per cent), and hotels, cafes and restaurants (+5.5 per cent). With household spending outpacing income growth, the household savings to income ratio fell from 8.3 per cent to 6.9 per cent and is now only moderately above its pre-COVID level.
Net trade detracted by 0.2 percentage points from GDP with the increase in exports (+2.7 per cent) offset by a much larger increase in imports (+3.9 per cent). The strong rise in imports was driven by Australians travelling abroad and increases in fuel and motor vehicles.
Compensation of employees in the private sector rose 3.4 per cent for the quarter, leading the public sector rise of 2.4 per cent. This rise is the strongest rate of wages growth since December 2006 and highlights the tightness of the labour market.
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