Private demand under the microscope after rate hike
The Australian economy is like a car exceeding the speed limit.
Or is it an inflating balloon stuck in a box?
Either way, it’s too hot for the Federal Reserve to handle.
New data coming next week will give the central bank more insight into whether it needs to raise interest rates again or whether February’s increase will be enough to bring the economy back into balance.
Stating that the revival in inflation, which forced the Central Bank’s hand, was caused by a number of factors, President Michele Bullock said that the rate of increase in consumer spending and business investments in the second half of 2025 caught the board of directors unprepared.
“Private sector demand appears to have increased more strongly than we expected in the second half of last year,” he told a parliamentary committee on Friday.
Finance Minister Jim Chalmers has announced that he will introduce long-promised changes to pension tax concessions to parliament on Wednesday, pending a deal with the Greens.
Speaking to the ABC’s Insider program on Sunday, he also said he was working on an efficiency package for the May budget aimed at addressing RBA-related long-term supply constraints.
“In fact, the importance of the work we do for the budget attracts more investment,” Dr Chalmers said.
“If we attract more investment, we remove the speed limit on the economy, making our economy more productive, more dynamic and more competitive.”
How resilient household spending remains will be tested with figures released by the Australian Bureau of Statistics on Monday.
Consumption increased faster than expected in November; This increase was partly driven by Black Friday sales, as consumer confidence fell due to fear of further interest rate hikes.
Economists believe households reined in their spending in December, with ANZ Bank’s Aaron Luk predicting a 0.5 per cent rise above consensus forecasts.
“While we expect services spending to be solid in December, goods spending has likely slowed following major promotional events in previous months,” he said.
The Westpac-Melbourne Institute consumer sentiment index fell to 92.9 in January and could fall further on Tuesday following the rate hike.
NAB’s business survey will also be released on Tuesday.
Another sign that the economy is strengthening is the recovery in housing investments, which caused housing prices to rise.
Credit growth figures to be released by the Australian Bureau of Statistics on Wednesday will show whether banking regulator APRA’s new restrictions on risky loans have had any impact on dampening investor demand.
It will also be a big week for Australian shares; Commonwealth Bank, CSL and AGL Energy will report half-year earnings on Wednesday, Origin Energy and gold miner Northern Star will provide updates on Thursday and medical technology company Cochlear will report on Friday.
Senior Reserve Bank officials, fresh from a parliamentary grilling by MPs in Canberra, will come to the fore again on Thursday when senators turn to ask questions.
Wall Street investors, meanwhile, are breathing a sigh of relief after indexes rose on Friday, technology stocks recovered most of their early-week declines and Bitcoin halted its slide.
The Dow Jones index rose 1,206.95 points, or 2.47 percent, to surpass the 50,000 level for the first time, finishing at 50,115.67 points.
While the S&P 500 index rose 2 percent, having its best day since May, the Nasdaq index rose 2.2 percent.
Australian share futures rose 92 points, or 1.06 percent, to 14,653.
The S&P/ASX200 index fell 180.4 points on Friday, falling 2.03 percent to 8,708.8 points, while the All Ordinaries index fell 200.3 points, or 2.19 percent, to 8,954.6 points.
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