RBA documents acknowledge that the cost of living on Australians is affecting economic growth

Internal documents reveal the RBA is acutely aware of the impact cost of living and interest rates are having on consumption and economic growth.

Cost-of-living pressures from soaring inflation and interest rates have been weighing on spending and economic growth, internal Reserve Bank of Australia documents show.

Documents detailing the central bank’s meetings with businesses and community organisations in late 2023 reveal expectations.

“Liaison suggests that consumption growth will remain subdued as cost-of-living pressures continue to weigh on economic growth,” RBA staff said in a September 18 update on liaison messages.

“Retailers report that consumers, particularly those facing higher cost-of-living pressures, are more budget conscious in their spending.”

A September 29 update after liaison discussions with retailers noted that consumers continued to trade down to cheaper products or were purchasing fewer items.

The same messages about budget-conscious consumers were repeated in another update dated October 23, which again noted that “economic growth remains subdued”.

The documents from September to November were released on Wednesday in response to a Freedom of Information request.

Prime Minister Anthony Albanese on Wednesday indicated Labor would seek to introduce more support in the May budget to help Australians grappling with interest rates and inflation.

“What we want is to take pressure off people who are feeling pressure as a result of global inflation. This has had an impact … So we’re very conscious about those cost-of-living pressures,“ Mr Albanese said.

The RBA documents were based on the central bank’s liaison program, where bank staff meet frequently with businesses, industry bodies, government agencies and community organisations to gather “economic intelligence”.

The updates on liaison messages also noted the impact of these pressures on domestic tourism, which had fallen from high levels during 2023.

“Many tourism contacts expect a further softening in demand because of cost-of-living pressures and interest rate increases,” an October 23 document said.

By the time of a November 3 note, the feedback was that retail conditions remained broadly unchanged, with lower volumes as “consumers have pulled back on spending and are more careful than last year in their purchases”.

After a four-month reprieve, the RBA delivered a 13th consecutive interest rate rise on November 7 as new RBA governor Michele Bullock acknowledged many householders were already experiencing “a painful squeeze” on their finances.

An internal email sent by an unidentified staffer to Ms Bullock and James Holloway, deputy head of the RBA’s economic analysis department, on November 16 showed the central bank was aware of “acute” cost-of-living pressures facing some Australians, as reported by community services organisations”.

“More people than usual are seeking support from community services organisations, including wage earners and households with mortgages who have sought food support,” the email said.

“Calls for support include for housing assistance, financial counselling services, mental health services, domestic violence services and food support.”

A November 20 update on liaison messages also highlighted pressures such as interest rate increases, were weighing on consumer spending and domestic leisure travel.

“Economic activity has moderated, but not as much as expected,” the update said.

The document also noted that private sector wages growth was expected to slow over the year ahead.

“Cost-of-living pressures and the tight labour market are cited as reasons for wages growth remaining higher than prior to the pandemic.”

The RBA has raised rates by 4.25 percentage points since May 2022, in an aggressive tightening cycle.

The cash rate is at a 12-year high of 4.35 per cent, after the RBA kept rates on hold in December.

While the RBA left the door open for further increases if inflation stayed higher than it would like, Commonwealth Bank economists are among those tipping rate cuts from late 2024.