Surge in spending

Domestic headline inflation was expected to reach eight percent in the final month of 2022 as consumers continued to spend despite higher interest rates, the Reserve Bank of Australia says.

Retail spending saw a significant increase of 6.4 percent during November, with Black Friday sales pushing the number even higher at eight percent during the last week of the month.

The surge in spending during this time is relatively new in Australia, with the event being similar to the Black Friday sales that occurred in 2021, but lower than the two previous years.

Low unemployment levels and expectations of continued labour shortages throughout the economy appear to be creating new-found confidence among consumers, despite continued increases in interest rates.

The Reserve Bank appears determined to halt further price rises by pushing interest rates even higher throughout 2023, which will inevitably flow through to higher home loan rates and further falls in property prices.

This is despite its own figures suggesting that if cash rates reach 3.6 percent next year, some 15 percent of Australian homebuyers will be experiencing negative cash flow, where their mortgage repayments exceed their net earnings.

Few analysts, though, are expecting widespread defaults, pointing to the build-up of large financial buffers through the pandemic, continued strong labour markets and earlier house price gains, all acting to help homeowners get through the coming year.

Nonetheless, the expectation is for further downward pressure on property prices through 2023, with most analysts predicting a 15 to 20 percent fall in national house prices from peak to trough with impaired or unrenovated properties experiencing even greater price falls.

Company profits are expected to remain strong, driven mostly by export prices, despite efforts to speed up the decarbonisation of the economy and move to more renewable sources of energy creation. Industries are expected to benefit from embracing public-private partnerships with the Federal Government in policy priority areas such as energy, defence, education, health, and security.

The continued strength of the domestic labour market and the strong international demand for Australia’s mining exports should also protect the domestic economy from the cold winds blowing through the international economy.

The United States economy, typically the powerhouse of the world economy, is almost certainly expected to fall into recession later in 2023, with domestic economic growth there expected to fall to a lacklustre 0.5 to one percent for the 2023 calendar year.

The Chinese economy is still held moribund by the continuing impact of the pandemic with reported cases of COVID-19 soaring as winter takes its grip on the country, causing factory shutdowns and with that, a fall in exports.

In the United Kingdom, inflation peaked at 11.8 percent in October 2022 and is expected to remain in double digits for some time as higher energy prices, interest rates and general cost of living increases cause widespread price hikes.

While the Bank of England is doing its best to bring inflation under control, there is widespread resentment that it is the poorest and most vulnerable in the community that are paying the highest price for the nation’s economic woes.

It is a situation made worse by the slowdown in economic activity in Europe generally, as the ongoing war in the Ukraine continues to take its toll, driving energy prices higher and causing massive economic dislocation.