MNI: BRIEF: Fears Grow Over Rapid Spending Drop - RBA Minutes

The Reserve Bank of Australia board noted at its July 4 meeting considerable uncertainty over household consumption resilience existed and the squeeze on household budgets could result in a sharper fall in spending than forecasted, according to the minutes published Tuesday.

Should consumption fall faster, the demand for labour will also slow and unemployment rise beyond the rate needed to ensure inflation returns to the 2-3% target in a reasonable timeframe, the board added.

The RBA beat expectations this month, pausing the cash rate at 4.1% for the second time since this hiking cycle began in May 2022 (see: MNI RBA WATCH: RBA Pauses Despite Still Sticky CPI). Governor Philip Lowe said at the time the board wanted to monitor the impact of the cumulative 400bp raise to the cash rate.

The minutes show board members discussed the lag in transmission from the hikes into the wider economy, noting a reset of low fixed-rate loans lied ahead. While some aspects of CPI remained sticky, such as rent and services, a fall in commodity and shipping prices had reduced upstream cost pressures, but output growth could slow more than expected, the board noted.

The Australian Bureau of Statistics will publish June quarter CPI on July 26. The RBA will next meet August 1.