While household spending continued to rise at the end of last year, the growth rate has started to slow in the face of rising interest rates and high inflation.

"After four quarters of strong growth following the Delta-variant lockdowns, growth in household spending softened in the December quarter," the bureau's head of national accounts, Katherine Keenan, said.

"Spending on discretionary services drove the rise in household consumption, however growth markedly slowed in comparison to the September quarter."

In order to fund that modest increase in spending, the household savings rate dropped for the fifth-consecutive quarter, from 7.1 to 4.5%.

"The household saving ratio continued to decline in the December quarter, to the lowest level since September 2017," Ms Keenan observed.

"The fall was driven by increased interest payable on dwellings, income tax payable and increased spending."

A slump in imports was the main thing keeping Australia's economy from contraction, as a fall in business investment cancelled out the modest rise in household consumption, and changes in inventories subtracted half a percentage point from GDP.

Exports of goods and services rose 1.1 per cent, while imports plunged 4.3 per cent, with the two combined adding 1.1 percentage points to the quarterly GDP figure, which only rose 0.5 per cent.

"Services exports rose 9.8%, reflecting the sustained recovery in education and personal travel as international students and tourists continued to return to Australia," the Australian Bureau of Statistics (ABS) noted in its report.

"Imports of goods (-3.8 per cent) drove the fall and was broad-based across consumption, capital and intermediate goods, aligned with weaker domestic demand.

"Imports of services (-6.5 per cent) also contributed to the fall as Australian travellers favoured cheaper, short-haul destinations. This follows recent strength since the reopening of international borders."

Indeed's Asia-Pacific economist Callam Pickering said this not bode well for the economic outlook in 2023.

"Australia's economy grew in the December quarter but it wasn't the type of growth that should give people much confidence for the year ahead," he warned.

"Although spending less on imports technically adds to Australian real GDP — since less money is leaving the country — it is typically a sign of economic weakness.

"The 4.3% fall in imports during the December quarter was the largest non-pandemic decline since the global financial crisis. It's a sign that high prices are impacting household- and business-spending patterns.

"While some forward-looking measures of economic performance continue to perform well, the overall picture shows an economy that is slowing down.

"A significant economic downturn is increasingly possible, although a near-term spike in the unemployment rate seems unlikely."

More evidence of inflation peak:

One area of good news from the separate monthly Consumer Price Index figures released today by the ABS is that inflation looks like it might have peaked at the end of last year.

The relatively new data showed annual price rises fell from 8.4% in the year to December to 7.4% in the year to January, although this was still the second-highest inflation rate in the five-year history of the monthly index.

The biggest contributors to inflation over the past year were housing (+9.8%, due to both construction costs and rents), food and non-alcoholic beverages (+8.2%) and recreation and culture (+10.2%).

However, it should be noted that all three of the above categories had fallen from the levels of annual inflation recorded in December.

Original Story By | Michael Janda