Off the boil: House price falls abate as rate hikes start to rein in the economy

Interest rates have started to peg back the growth of the Australian economy and Queensland consumers were shutting their wallets, according to latest offical data.

John McCarthy

Mar 01, 2023, updated Mar 01, 2023

The falls in house prices appear to be abating. (ABC News: Eliza Laschon)

Official GDP released on Wednesday fell well below expectations and inflation data also showed a notable drop, but economists remain unconvinced the figures would change the mind of the Reserve Bank or the market expectation of at least two more interest rate increases.

The ANZ said the data suggested the economy was slowing “under the weight of higher prices and interest rates, with consumer spending recording outright falls in two states”.

Queensland (-0.3 per cent) and South Australia (-0.2 per cent) recorded the weakest state final demand, reflecting falling household consumption. However, the figure excludes exports.

Inflationary pressures, while past the peak, remained strong.

ANZ said the figures suggested consumers were starting to feel the pinch of sharply rising prices, as well as the cumulative impact of last year’s cash rate hikes.

“While we have long thought that the build-up of large household bank deposits over the past few years would support spending for some time, these data suggest that consumers are pulling back a little earlier than expected,” the bank’s economists said.

It came as the fall in house prices nationally appeared to be abating with Sydney actually showing a small increase. Brisbane house prices fell 0.4 per cent in December while regional Queensland was down 0.3 per cent. On an annual basis Brisbane was now down 6.8 per cent and the regions were down 3 per cent.

A major factor in the slowing rate of decline was the lack of houses on the market.

The GDP figures showed that a major issue in the economy appeared to be that Australians had stopped spending on things other than food.

The consumer price index, which measures inflation, came in at an annual rate of 7.4 per cent, a significant fall from 8.4 per cent in December.

The most significant contributors to the annual inflation increase in January inflation was housing (+9.8 per cent), food and non-alcoholic beverages (+8.2 per cent) and recreation and culture (+10.2 per cent).

Co-chief investment officer for Aequitas Investment Partners David Berthon-Jones said the monthly inflation gave some cause for comfort that the peak had been reached, but that more interest rate hikes were likely and there needed to be a repeat of this performance in future months to change the conversation.

The economic growth figures for the December quarter of 0.5 per cent, or 2.7 per cent annually, were a disappointment for the market.

FM Investors economist Alex Joiner said it was notable that population growth has accelerated meaning that per capita economic growth was flat.

“The slow down is clearly in train,” he said.

“If not for the strong contribution from net exports this would have been a negative headline result.

“Household spending on goods ex-food and discretionary items was negative showing the pressure on consumers from the cost of living rises and higher rates services and non-discretionary up modestly. This is going to be the story through 2023, the discretionary sectors (will be) squeezed hard.”