SYDNEY, Nov 13: Australian consumers grew more confident in November as rising home prices made people feel better about their finances, and readier to splash out on big ticket items.
The boost to wealth from bricks and mortar was just as well, since government data out on Wednesday showed wages were growing at the slowest pace in at least 16 years.
Still, the parsimony on pay should help keep inflation tame and allow the Reserve Bank of Australia (RBA) to hold rates at record lows for longer, so further supporting home values.
‘Labour costs are set to remain particularly modest…And confirm the well behaved inflation outlook,’ said Su-Lin Ong, a senior economist sat RBC Capital Markets.
‘The cash rate is set to remain at an historical low for an extended period. We think this period could stretch into 2015.’
The central bank cut rates in both May and August, taking them to an historic trough of 2.5 percent as it sought to bolster demand in the face of a cooling mining sector.
The tactic is clearly working for home prices which were up 8 percent in the year to October at record highs, according to well regarded data from property consultant RPData.
Given two thirds of Australian households own their home either outright or with a mortgage, higher housing prices have had an invigorating effect on both wealth and confidence.
A closely-watched survey of consumers from the Melbourne Institute and Westpac Bank out on Wednesday found sentiment near its highest in three years in November.
The survey’s main measure of confidence climbed 1.9 percent in the month, to be up almost 6 percent on November last year.
And, in a promising sign for the Christmas shopping season, the index on whether it was a good time to make a big ticket purchase climbed 4.4 percent to an historically high 142.8.
‘Families believe their finances are far better than a year ago and many believe that this is a great time to buy a major household item like a TV, fridge or washing machine.’ said Craig James, chief economist at CommSec.
‘Confidence in the key 25-44 year demographic was sharply higher over the month,’ he added.
The mix of higher home prices and lower mortgage rates is also proving an important support to incomes as wage growth slows.
The Australian Bureau of Statistics said its main measure of wages rose just 0.5 percent in the three months to September, the smallest increase since 2009.
Annual wage growth of 2.7 percent was the slowest since the series began in 1997, with the moderation marked across both the private and public sectors.
John Peters, a senior economist at Commonwealth Bank, noted that not a single industry in the private sector could now boast wage growth above 4 percent, a very rare moment.
The RBA has been counting on just such a moderation to help keep inflation in the lower half of its 2 to 3 percent target range, while easing pressure on firms’ profit margins.
‘Since December last year the RBA has routinely noted that the generally favourable inflation outlook provided room to cut rates,’ said Peters. ‘The data helps underpin that mild easing bias.’
(agencies)
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