Why 13 Rate Rises Haven’t Knocked Out the Aussie Consumer Who Just Keeps Spending
4 min read
Key takeaways
After 13 interest rate rises, Australian consumers continue to spend like they’re in the ring with a featherweight, not a heavyweight. There are several reasons behind this resilience.
Consumers have used their savings to fuel their spending, even as the Reserve Bank continued to tighten the screws.
The strength of the Australian job market has helped to keep consumer spending strong. People feel secure in their jobs and have negotiated pay rises, giving them the confidence to keep their wallets open.
The housing market plays a big role in consumer behaviour, and the housing wealth effect is a psychological boost that is hard to measure but very real.
The Aussie consumer is still in the game, showing that conventional economic wisdom doesn’t account for the complexities of human behaviour. Rates will rise again, and the job market may start to show signs of weakness.
You’d think that after 13 interest rate rises, the Australian consumer would be on the ropes, gasping for breath.
But here we are, watching Aussies continue to spend like they’re in the ring with a featherweight, not a heavyweight.
What gives?
It’s a fascinating scenario that has defied all the economic forecasters who predicted an economic downturn and a property crash from the fixed-rate mortgage cliff – remember that?
Well, there are several reasons behind this resilience.
The cushion of savings
First off, let’s talk about the COVID savings boom.
When the pandemic hit, many Australians found themselves saving more than ever before.
Travel was off the table, dining out became a distant memory, and government support measures like JobKeeper added a nice buffer to the bank accounts of those who could keep working.
This built-up savings acted as a financial cushion, absorbing the shock of rising interest rates.
These savings haven’t just been sitting idle; they’ve been fuelling spending, even as the Reserve Bank continued to tighten the screws.
Consumers have had extra cash to draw on, allowing them to maintain their spending habits despite higher mortgage repayments and living costs.
But how long will this buffer last?
For many, it seems to be running out as our household savings ratios fall.
Strong employment market
Another factor is the strength of the Australian job market.
Employment has remained robust, with unemployment rates sitting at near-record lows.
People feel secure in their jobs, and this confidence is crucial for consumer spending.
When you’re confident that your income stream isn’t about to dry up, you’re more likely to keep spending—even in the face of rising costs.
Add to this the fact that wages, while not skyrocketing, have been increasing.
Many workers have managed to negotiate pay rises, particularly in sectors where skills shortages have given employees more bargaining power.
This wage growth, combined with strong job security, has given many Australians the confidence to keep their wallets open.
Credit and consumer confidence
Let’s not forget the role of credit.
Australians have shown they’re not shy about using credit to maintain their lifestyles.
Credit card balances and personal loans have seen upticks, suggesting that some consumers are leaning on credit to bridge the gap between their incomes and their desired spending levels.
Others are using buy now pay later systems.
Consumer confidence has also been surprisingly resilient.
Despite all the doom and gloom in the media about the cost of living, many Aussies still feel relatively optimistic about their personal financial situations.
This optimism, whether justified or not, is driving continued spending.
Housing wealth effect
The housing market plays a big role in consumer behaviour, and despite interest rate rises, property prices have increased by double-digit growth in many areas.
For homeowners, this creates a wealth effect—the feeling that they’re still ahead, at least on paper, which can encourage them to spend.
It’s a psychological boost that’s hard to measure but very real in its impact.
Of course, homeowners, particularly those who bought before the recent boom or who have paid off significant portions of their mortgages, are less sensitive to rate rises.
They’ve built equity and, in many cases, have refinanced at lower rates before the hikes began.
This has insulated them somewhat from the full impact of rising rates.
What’s next?
However, this resilience can’t last forever.
The question is: when will the cumulative effect of these rate rises finally cause the consumer to tap out?
As those COVID savings dwindle and as the full impact of higher mortgage repayments kicks in, we might start to see a pullback in spending.
But for now, the Aussie consumer is still in the game, showing that sometimes, conventional economic wisdom doesn’t account for the complexities of human behaviour.
People are more than just numbers on a spreadsheet; they’re influenced by a range of factors—from savings and job security to consumer confidence and the wealth effect of their homes.
The real test will come if rates rise again or if the job market starts to show signs of weakness.
Until then, the Aussie consumer is proving to be a resilient, if not slightly defiant, player in this economic landscape.
