The RBA has identified weak growth in household disposable income and a downturn in household and business expectations due to major threats to consumption and investment within the economy. A fourth-quarter reduction in capital expenditure (Capex) further reflects a smaller appetite for risk with both domestic and global uncertainty reducing spending. These factors have continued to constrain Australian growth to a moderate pace.
Despite rising prices in the housing market especially in Sydney and Melbourne, Australia’s inflation rate remains subdued at 1.8% for the December quarter, below the RBA’s target band of 2-3%. A looser labour market is partially to blame, as lower upward pressure on wage growth (0.4% in real terms) has reined in on wage prices. Targeting Australia’s high underemployment rate may help tighten the labour market and help counteract the economy’s low inflation.