In this week’s letter, we investigate the Australian economy, a major producer of various global commodities, including iron ore, copper, and lithium, among others. We start by looking at recent monetary policy developments in Australia, against a backdrop of still-high inflation. We next examine trends in Australia’s household sector, taking stock of slowing consumption growth and moderating debt levels. Closely tied to household debt is the property sector, which has started to see firmer prices again after a respite in early 2023. We then touch on Australia’s labour market, which remains tight but with persistent real wage losses due to high inflation. Lastly, we look at Australia’s trade, with a focus on China, a key trading partner. We note strong growth in Australia’s exports to China, aided in part by iron ore, amid slowing shipments to advanced Asian economies.
Monetary policy Australia has undergone significant monetary tightening in recent years to tackle inflation. Specifically, the Reserve Bank of Australia (RBA) has raised its policy rate by a total of 425 bps since April 2022, 125 bps of which occurred in 2023 (chart 1). Headline CPI inflation has cooled significantly since, to 4.3% y/y in November 2023, from a peak of 8.4% in December 2022, as pressures from food and housing prices cooled. With that said, consumer inflation remains far from the RBA’s target of between 2% and 3%, making RBA rate cuts unlikely, at least in the immediate months ahead.