Will inflation dampen Aussies’ post-pandemic ‘YOLO attitude’ in 2023?

While Australia has been in a generally sweet spot compared to global peers, 2023 could be the year we see interest rate hikes truly pinch, according to market experts.

There was a low chance of a pause on rate rises by the Reserve Bank of Australia (RBA) in February, noted Adelaide Timbrell, ANZ senior economist, despite monthly CPI inflation rising to 7.3% in November.

“Job vacancies stayed very strong at 444,200 in November, while monthly CPI rose to 7.3% year-on-year. These data are strong enough to reduce any risk of a pause in February for the RBA and reinforce our view that the peak cash rate will be at least 3.85%,” she stated.

Retail spending in November was stronger than expected, boosted by Black Friday sales, but the jobs market seemed to be losing momentum. Moreover, housing prices continued to decline and building approval figures were weak.

According to Paul Bloxham, HSBC chief economist, Australia, NZ & global commodities, this was “clear evidence” that monetary tightening was working. While inflation was high, it appeared to be past its peak month-on-month. 

“The CPI indicator is high, but still not as high as the RBA was forecasting for the quarterly figures in its most recent official forecasts back in early November (we get the quarterly figures on 25 January),” Bloxham explained.

“In our view, the February RBA meeting is still in play. The RBA could choose to focus on inflation and lift the cash rate further. Given everything we have described above, 25 basis points is on the table rather than 50 basis points.”

He added, “On the other hand, the global slowdown, weakening global inflation, early signs of some cooling of the local labour market and acknowledgement that much of the impact of the 300 basis points of the RBA's tightening to date has yet to work through the economy, could see the RBA choose to pause.”

Consumer spending, which had been boosted by Black Friday and Christmas preparations, could see a decline after as the festive season wrapped up, said Russel Chesler, VanEck head of investments and capital markets.

“We believe Australians are enjoying life post-pandemic with a bit of a YOLO attitude, consumers are splashing out now, but might pull back in February after an over-indulgent holiday spending hangover kicks in,” he elaborated.

“The post-pandemic purchasing boom could come to an abrupt halt in 2023.”

He predicted Australia’s share markets would continue to outperform the US share market in 2023, with China’s reopening and relatively high commodity prices likely to benefit big resources companies like Rio Tinto and BHP.

“However, companies earning discretionary incomes such as Harvey Norman and JB Hi-Fi are likely to experience slower earnings growth as consumers start to feel the pinch of higher rates,” Chesler predicted.