Even affluent Australians are pulling back on spending

Let me introduce you to the Australians who will be the power house of consumer spending during 2023-24. They appear to be embarking on a set of behaviours which surprised me, as it will most in the nation.

My knowledge of the emerging spending patterns of this powerhouse comes from my network of discretionary spending non-food retailers which, via my commentaries, first alerted the nation, that there had been a sharp fall in consumer spending in the days following Mother's Day. That fall is now being reflected in official statistics and in the results of corporations.

The retailers are now starting to gain a better understanding of the forces that suddenly caused middle Australia who are not impacted by mortgage or rent stress to reduce their spending.

They have listened to the messages from Reserve Bank governor Philip Lowe, plus the commentaries attached to his messages, and have curtailed their spending.

A Coach handbag store at Chatswood Chase.

Naturally, the curtailment is partly motivated by economic caution. But many retailers believe that this group’s spending curtailment is also being undertaken in the national interest and to help the suffering. They realise that unless their spending is curtailed, interest rates will not fall and the suffering will intensify. And it looks like they’re winning because the lower inflation makes it highly likely that even if there is one more interest rate rise after either the August or September RBA meetings, that will be the last. The next move, whenever that maybe, will be down.

On the surface, it seems bizarre that a significant group of Australians would act in this way. But retailers notice that if they price a popular item at a worthwhile discount, the money will come flowing in to snap up the bargain.

Perhaps we should not be surprised. Many Australians understand what the RBA is trying to do and are responding accordingly to relieve at least some of the suffering of those with mortgage stress. They have sympathy for those suffering mortgage or rent stress, especially as almost all the journalistic commentary, including mine, concentrates on this stressed group.

But there is another aspect we rarely highlight. middle Australia’s spending restraint is a confirmation of the wonderful people that inhabit our land.

Many retailers believe — there is also an element of hope – that there is a reservoir of consumer spending that will be triggered once the central bank reduces interest rates to relieve mortgage stress. The share market has a similar view and many retail shares, although not all, have held up remarkably well.

This strong group of consumers are not fools and via their business activities know that inflation may fall but will not go away. Currently, the prices of imported goods is falling, which is closely related to China’s own problems and its difficulties in marketing to the US.

Business costs continue to rise over a wide area, and the energy policies of both federal and some state governments such as Victoria mean energy prise rises have a long way to go. Skills shortages remain, which is placing enormous upward pressure on wages.

Governments have not understood the need to manage their costs, so their charges continue to rise.

Many ordinary Australians are coming to realise that the aim of the RBA of two to three per cent inflation is unlikely to be achieved unless there’s a catastrophic fall in economic activity. More likely, we will emerge as a nation where inflation will fall below the peaks to around four per cent – the rate forecast by former RBA governor Ian Macfarlane.

Former RBA governor Ian Macfarlane.

Interest rates will also fall from the peaks, but again will not return to the token levels of a year ago. Both and stressed and non stressed Australians will be required to adapt to this environment. As has happened in the past, over time, inflation reduces the debts.

And as I have pointed out previously, get set for an overseas and local institution funded boom in build for rent projects in those states that are prepared to remove their approval delay and building cost boosting bureaucracies. That’s the way to reduce rent stress.