Biggest things to happen in the Australian economy in the last three months

Between multiple major interest rate hikes and rising costs of living, the last three months have been eventful for the finances of many Australians. New figures from the Australian Bureau of Statistics (ABS) give some indication of how Australia’s economy has handled the June 2022 quarter.  

What happened last quarter? 

The recently released National Accounts from the ABS show that Australia’s Gross Domestic Product (GDP) rose by 0.9 per cent in the June 2022 quarter, and by 3.6 per cent year on year. A wide range of factors contributed to this result, including the following:

We travelled more, but saved less 

Social media feeds full of photos of people on holiday? You’re not alone. As the first quarter since the start of the pandemic with open international and domestic borders and no restrictions of movement, Australians began travelling internationally again, with travel reaching 38.6 per cent of pre-pandemic levels.

However, more spending on travel and other expenses means that household savings rates dropped to 8.7 per cent, down from 11.1 per cent in the March 2022 quarter. That said, this is still above pre-pandemic savings levels.

We went out to more restaurants, but spent less in supermarkets 

With pandemic-related restrictions and capacity limits being largely things of the past, spending on eating out and accommodation rose 8.8 per cent in the June 2022 quarter, returning to pre-pandemic levels. Additionally, spending on recreation and culture rose by 3.6 per cent and consumption of transport services rose 37.3 per cent.

But all of this going out to restaurants and bars means we spent less time cooking at home. Purchases of food from supermarkets and specialty stores fell 1.2%, which was the third quarterly fall in a row.

We worked more, but built fewer homes 

More Australians returned to the office and the worksite over the June 2022 quarter, with hours worked growing by 2.9 per cent, and unemployment reaching 3.5 per cent.

However, home building fell by 2.9 per cent over the quarter, affected by poor weather, trade and material shortages, and workforce illnesses. This was the third quarterly fall recorded in a row.

Prices rose, but wage growth slowed 

If you’ve been paying rent or a mortgage, or filling up your car, it may not surprise you to learn that housing and fuel were the major drivers of consumer prices rising 1.8 per cent over the June 2022 quarter. Year on year, this was a growth rate of 6.1 per cent, which was the fastest annual increase since June 2001.

And if your household budget is looking a little tight, it may also not surprise you that wage growth has been trailing inflation, with the Wage Price Index rising 0.7 per cent over the June 2022 quarter and 2.6 per cent over the year.

What may happen next quarter and beyond? 

Forecasting the financial future isn’t easy, but there are a few indicators of what you may be able to expect over the rest of 2022.

Rates may keep rising, before pausing 

To help tackle inflation, the Reserve Bank of Australia (RBA) has been hiking the national cash rate at the fastest pace in decades. At the time of writing, it had reached 2.35 per cent, which is within the RBA’s target band for inflation of between 2 and 3 per cent.

Economists from several leading banks are forecasting that at least one more rate hike is on the cards for later this year, which should bring the cash rate to 2.60 or 2.85. Some banks are forecasting multiple 25-point rate hikes instead, with the cash rate to hit 3.35 per cent by February 2023.

Wherever the cash rate reaches, it’s expected that the RBA should pause the hikes for a period of time so the economy can feel their effects.

Inflation may peak, then decline 

The RBA is forecasting that Australia’s inflation rate should reach 7.75 per cent by the end of the year. Their target is to bring this figure down to somewhere between 2 and 3 per cent.

Between the multiple rate hikes over the last few months, and the gradual resolution of external issues such as supply chain disruptions, it’s expected that inflation should gradually decline over the course of 2023 and fall into the RBA’s target band by 2024.

Of course, in the meantime many Australians will be feeling the pinch of higher interest rates, especially those who are paying mortgages on variable interest rates. Borrowers in a position to do so may want to consider their options for refinancing, with some lenders cutting variable rates for new customers.

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