Below trend growth to continue
Cash rate likely to hit 4.6% as narrow path sinks
While the recent run of activity data including our business survey clearly show the economy is now slowing – as consumer spending begins to stall – inflation and wage data still show that price pressures remain elevated. This was highlighted by the Q1 national accounts which saw GDP growth of just 0.2% q/q and increasing signs of rates and inflation weighing on the consumer, while dwelling investment (typically very sensitive to rates, but also in this cycle cost pressures) continued to fall. The household income account showed a further moderation in the savings rate.
The nominal side of the accounts reflects what we already know in terms of passing the peak in inflationary pressure, but both the DFD and consumption deflators remain elevated. Interestingly, average earnings per hour (the broadest measure of labour costs, including bonuses and other payments) while accelerating continues to track below 4%. However, nominal unit labour costs which adjust labour cost growth for productivity, continue to track very strongly rising 2% q/q and tracking at near 8% y/y.
For further details, please see the NAB Monetary Policy Update (13 June 2023)
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