Australia has experienced a massive supply-demand imbalance throughout the pandemic period, with workforces and supply chains disrupted while the government commits to huge levels of expenditure.
The ‘inflation genie is now out of the bottle’ but inflation figures in Australia and its major trading partners are low relative to some other economies throughout the world. In the face of rising inflation, we’re seeing central banks hiking interest rates. Higher rates won’t put a stop to COVID or end the war in Ukraine, Hutley says. But they will slow down demand to meet the constraints Australia is experiencing on the supply side.
The Australian economy is currently doing well, with 3.5 per cent growth over the year to June 2022, Hutley says. Its performance to date has been driven by strong consumer demand.
Consumer confidence is currently so low that it’s consistent with the country experiencing a major economic dislocation. Consumer sentiment is likely to drop further once the impact of rising interest rates on home mortgages starts to bite. Interest rates are still at historically low levels, but what we’ve seen in recent months is a very sharp rate increase that will affect many households, particularly those in the low-income bracket.
Worryingly, the Australian public clearly anticipate economic conditions will get worse before they get better.