The Omicron outbreak has failed to dent the economy but the nation’s two largest property markets are showing clear signs of stalling even before the Reserve Bank starts lifting official interest rates to curb growing inflation pressures.
Ahead of Wednesday’s national accounts, data covering business profits, wages, inventories and retail trade all showed the economy weathering the disruption caused through December and January as people were forced into isolation and shops found themselves short of staff.
Home value growth is already slowing in major cities.Credit:Peter Rae
Australia’s economy contracted by 1.9 per cent in last year’s September quarter as NSW, Victoria and the ACT were forced into Delta-related lockdowns. The economy, which had been one of the world’s strongest through the coronavirus recession, contracted to where it was in late 2019.
There were initial fears Omicron could deliver a similar-sized hit but Australian Bureau of Statistics figures on Monday showed the economy bouncing back from the September quarter hit.
Company operating profits lifted by 2 per cent in the December quarter to be 13 per cent up over the year, hitting an all time high of $478.2 billion.
Wages and salaries, which takes in the expansion in the labour market and any increases in hours, rose by 1.9 per cent to be 5.5 per cent up over the year. Inventories, which fell in the September quarter, rose by 1.1 per cent and will add a full percentage point to this week’s national accounts.
Separate data from the bureau showed retail sales up by 1.8 per cent in January after a 4.4 per cent fall in February.
Like previous COVID-19 outbreaks, consumers lifted their spending on food which climbed by 2.2 per cent in the month. Expenditure on eating out in cafes and restaurants, however, fell by 0.8 per cent.
Turnover growth at 4.7 per cent was strongest in WA which avoided lockdowns and restrictions through January. In Victoria, where sales had fallen by 8.4 per cent in December, improved by 2.5 per cent the following month.
While the overall economy bounces back strongly from last year’s COVID-19 hit, house prices -–which have been growing at their fastest pace in more than 30 years – are now levelling.
CoreLogic’s monthly house value report, to be released on Tuesday, will confirm the end of runaway prices in the Sydney and Melbourne markets.
Its daily index of dwelling values showed that through February, values in Sydney had edged down by 0.1 per cent while in Melbourne they were flat. Across the nation’s five largest cities, values rose by 0.3 per cent in February, the smallest increase in almost 18 months.
The Reserve Bank board meets on Tuesday with no expectation of a move in interest rates. But financial markets and economists believe inflation pressures will force the RBA to start normalising rates by August.
The TD-Melbourne Institute measure of monthly inflation on Tuesday showed underlying inflation at a decade-high level of 3.2 per cent and accelerating. The Reserve Bank attempts to hold inflation between 2 and 3 per cent.
Commonwealth Bank senior economist Kristina Clifton noted growth in broad money – which includes notes and coins in circulation plus savings and deposits – edged up again in January and remains at a level well above its pre-pandemic average in what is an “inflationary pulse” to the economy.
She said the retail trade data, on top of the CBA’s own internal tracking of consumer spending, suggested the economy had come through the Omicron outbreak.
“Our data show that spending on CBA debit and credit cards troughed in early January and has been improving since. That suggests the disruption caused by the Omicron wave late last year/early this year was only temporary and has to date only had a limited impact on consumer spending,” she said.
BIS Oxford Economics senior economist Sean Langcake said despite the lift in retail spending, the rest of the year would be a challenge especially if inflation lifts.
“We still expect 2022 will be challenging for retailers as consumer spending pivots back toward services. Inflation will pick up in the near term due to higher oil prices. While this will support retail turnover, it will be a headwind to sales volumes,” he said.
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