Notable increases in CPI growth are raising concerns about the cash rate. At its most recent meeting, the RBA assessed whether the current monetary policy settings are sufficient to bring inflation back within its target range of 2%-3% in a timely manner.

If inflation rises further in the coming months, there may be a case for raising the cash rate, or at least postpone the likelihood of a rate cut this year – lending an air of uncertainty to speculations of interest rate stability and impacting consumer sentiment.

Private expenditure is expected to remain restrained with the household saving rate dropping to just 0.9% in Q1 2024. However, improvements in real wage growth and stage 3 tax cuts may provide some relief, offering households an opportunity to replenish their savings.

If households choose to save a significant portion of their extra disposable income, it could help curb inflation but risks slowing economic growth and weakening labour market conditions as demand softens.

Households continue to face high cost of living pressures, which has led to reduced discretionary spending, affecting sectors like retail, tourism, and hospitality that have not yet fully recovered from the pandemic.

Government initiatives will be needed to drive business investment and prevent further stalling.

Uncertain consumer sentiment is likely to exacerbate challenges in the property market. High construction and funding costs are expected to continue impacting the feasibility of residential developments, limiting new home supply and further deepening the current affordability concerns.

Despite these challenges, robust population growth will likely sustain demand for rental properties, leading to continued solid growth in rental prices due to the significant supply demand imbalance. This rapid population growth is a double edged sword; while it bolsters demand, it is set against a backdrop of a nationwide housing shortage, which has garnered national media coverage and federal government attention.

This article references findings from our Q1 2024 Economic and Residential Property Market Report.