Australian household spending jumps in January 2022, will the momentum continue?

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Australian household spending jumps in January 2022, will the momentum continue?

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 Australian household spending jumps in January 2022, will the momentum continue?
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Highlights

  • Consumer confidence has taken a hit from the ongoing war in Ukraine as inflationary fears surface.
  • The latest data by the ABS reveals that household spending rebounded at an impressive rate in January 2022.
  • Research by the ANZ reveals that consumer confidence dipped to its lowest level since September 2020 during the third week of March.

With one of the world’s most unpleasant events unfolding in Ukraine, the war is sending severe shockwaves around the globe. Most notably, consumer confidence has taken a hit from these geopolitical tensions as inflationary fears surface. Fears of receding demand for goods and services, a slowdown in economic growth and a subsequent decline in employment are looming across the world economy.

At the same time, the war has exacerbated existing supply chain issues, with shipment delays dragging on for a longer than expected time. A direct impact of this fall in the supply of goods has been rising inflationary pressures. Meanwhile, rising prices and slowing economic growth have fuelled speculations of stagflation in multiple economies.

Amidst these global headwinds, Australia has managed to stay afloat and resilient in the face of widespread economic volatility. The data on employment and other economic parameters has repeatedly provided a sense of relief to the government. Adding to this list of upbeat data is the latest release on household spending by the Australian Bureau of Statistics (ABS).

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Household spending impresses in January

The data by ABS reveals that household spending rose 4.3% in current price during January 2022, compared to a year ago during January 2021. Household spending rose in seven categories in January this year out of the nine spending categories.

As restrictions were pulled back and Aussies saw a more relaxed environment, many chose to spend their money on travel and tourism. The same was evident from the data as household spending on the recreation and culture category saw the largest annual rise of 11.3%. Closely following this rise, spending on food increased by 9.7%. In a way, households primarily engaged in hospitality and retail spending through most of the previous year.

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Western Australia recorded the largest annual rise of 7.1% in household spending among all states. The Northern Territory was the only state or territory that saw a decline in spending during the twelve months ended January 2022. When comparing January 2022 data to pre-pandemic January 2020 estimates, the total household spending was 0.6% lower in current price.

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Near-term risk to the outlook, says ANZ

It is important to note that the latest release by the ABS is for the month of January 2022 and does not contain the full impact of global events that occurred thereafter. While supply chain issues were persistent during January this year, the Russia-Ukraine war did not commence during that time. Thus, the ABS release does not reflect the shift in consumer confidence observed after the war ensued.

The weekly ANZ-Roy Morgan consumer confidence index showed a decline of 4.6 pts to 91.2 during the third week of March. This is the index’s lowest level since September 2020, when Victoria witnessed the second wave of COVID-19.

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Inflationary fears have surfaced from the Ukraine-Russia war.

More worrying are the weekly inflation expectations, which rose by a further 0.4 percentage points to 6%. This is the highest level since 2011. The recent decline in confidence has developed due to the ongoing geopolitical concerns and reports of rising inflation. As the war in Ukraine created a global oil price shock, inflation expectations surged to record-high levels.

Surprisingly, solid employment data released by the ABS for previous months did little to uplift consumer confidence. This contrast between consumer confidence and employment data can be attributed to the less-than-ideal rate of wage rise. Wages have risen at a rate lower than the inflation rate.

In a nutshell, rising financial pressures on the households could become more pronounced in the coming months when the actual impact of the war in Ukraine would be felt in Australia.

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