Households should brace for further cost of living pressures, even in an economy that is proving to be less upbeat than voters were led to believe in the run-up to last weekend’s federal election.
More than a third of all businesses are preparing to pass on the increased costs of products by more than the usual amount, while figures this week suggest the economy barely grew in the first three months of the year.
Prime Minister Anthony Albanese is very conscious of the economic headwinds facing Australia, which is why he wanted Treasurer Jim Chalmers and Finance Minister Katy Gallagher sworn in quickly after Labor’s election win.
He told ABC television they needed to be on top of their brief immediately.
“They will provide economic leadership for this country,” he said on his return from Tokyo after attending a meeting with leaders from the US, Japan and India.
“I want an economy that works for people, not the other way around.”
Former Liberal minister Angus Taylor agreed there is enormous pressure on interest rates and inflation globally.
“The Labor Party will be under, and should be under, enormous pressure to get the decisions right as we face our next great challenge,” Mr Taylor told Sky News.
Still, figures released this week indicate the national accounts on June 1 grew by less than one per cent in the March quarter, a far cry from the “strong economy” rhetoric spruiked by the outgoing coalition government during six weeks of campaigning.
AMP economist Diana Mousina is predicting a flat growth result for the quarter, which would drag the annual rate down to 2.3 per cent from 4.2 per cent as of December.
One-in-three businesses expect to pass on larger than usual costs to their customers as a result of rising prices for products, services and energy, a survey conducted by the Australian Bureau of Statistics in May found.
Separately, the ABS said new private capital capital expenditure (capex) fell 0.3 per cent to $33.6 billion in the March quarter compared with economists’ forecasts for a 1.3 per cent increase.
One saving grace was a 1.2 per cent increase to $16.2 billion in equipment, plant and machinery, which feeds directly into the national accounts.
But building and structures for the March quarter fell 1.7 per cent to $17.3 billion.
BIS Oxford Economics head of macroeconomic forecasting Sean Langcake said the March quarter was challenging for business investment.
“The rapid spread of Omicron cases left many firms short-handed as staff were forced to isolate or take sick leave,” he said.
“Flooding in NSW and Queensland at the end of the quarter will have also weighed on construction activity.”
Other components that go towards the make-up of the national accounts have shown steady growth in household spending, but construction was unexpectedly soft and net exports are predicted to have a large drag on the overall outcome.
Economists will finalise their growth forecasts for the March quarter early next week when the ABS releases international trade, business profits and inventories, and government finance figures.
A possible lame growth result in the March quarter comes even before the impact from a steady rise in interest rates by the Reserve Bank of Australia as it tries to curb inflation.
Commonwealth Bank senior economist Belinda Allen is expecting the RBA to raise the cash rate at its June 7 board meeting by 25 basis points following on from the hike earlier this month.
She is expecting similar sized hikes in July, August and November this year, and further move in February 2023.
“This will take the cash rate to 1.60 per cent,” she said.