Inflation inches lower
According to ABS data, the monthly Consumer Price Index (CPI) for February was 3.4 %. Across the year the CPI fell from 7.8% to 4.1% p.a., while the Producer Price Index (PPI) declined from 5.8% to 4.1% p.a.
Official forecasts expect inflation easing. However, CPI is not expected to return to the ‘target band’ until either late 2024 (Treasury) or mid-2025 (RBA).
Many observers expect the RBA to be start cutting rates in September or November 2024, but this will depend on the strength of the labour market.
Discretionary spending turns negative
Household expenditure growth has accelerated from its low point in December 2023. In the year to February 2024, nominal household spending increased by 3.6%.
However, discretionary household spending contracted for the first time in 2024 with -0.2 while non-discretionary spending rose to 6.9. Due to rising fuel prices, transportation expenses accounts for the majority. The consumer behaviour is changing as a result of the cost-of-living pressure.
Real wages growth returns
The Wage Price Index (WPI) rose 4.2% in the December quarter. This is the first-time real wage growth - when nominal wages growth exceeds inflation - since March 2021.
The public sector WPI was 4.3% and private 4.2% annually. The public sector experienced a notable increase, with a 1.5% rise observed since September.
This is due to the government wage policy reforms for employees in the healthcare, childcare, social assistance and education industries.
Vacancies moderated yet remained high
The national job vacancy rate is currently 2.4%. This is down from peak of 3.1% in mid-2022, but well above the average of 1.5% in prior decade.
The number of unemployed people was 578,000 in December 2023, a 15.2% increase from the low of 497,000 recorded in September 2022. As a result, the gap between unemployed people and vacant jobs widened slightly to 190,000.
However, the gap remains much narrower than normal levels, which averaged 530,000 in the decade prior to 2020. This suggests that the Australian employment market has yet to return to normal demand and supply.
Industries performance mixed in 2023
Overall, real value-add in all industries excluding mining grew by 2.7% in 2023.
This is a noticeable slowing from a rate of 4.9% in 2022. Some industries which had previously faced supply-side constraints – such as agriculture, transport, and construction – posted strong growth during the year.
But much weaker results were seen in some industrial sectors (manufacturing, utilities and wholesale trade), professional services, and retail.
Four industries posted contraction in 2023, with retail the weakest performer at a -0.9%.
Working age population finally catches up
During the pandemic, the closed border stemmed the flow of new migrants. This saw Australia's working age population contract by 69,000 people on its pre-pandemic level.
When compared to projections of its historical growth trend, the working age population gap had reached 339,000 people by the end of 2021.
In September quarter of 2023, the working age population in Australia finally caught up with the pre-pandemic trend.
As migration returns Australia’s working age population to its pre-pandemic trend level, this will alleviate labour market pressures.
