Chart of the Week - Total Consumer Demand
This chart comes courtesy of our RBA. Shows that when Australian residents stopped spending (in blue), international students (orange) and travellers (green) stemmed the decline. See @AlexJoiner for more.
Highlights how inflation has been so persistent even though most households, particularly borrowers, curtailed their spending to the point of collapse. This data could suggest that many Australian households were effectively in recession for much of 2023 to 2024. Understand this is monetary policy engineered by the RBA to ward off against other policy goals (combatting inflation). The desired outcome of monetary policy via the levers of interest rates is to slow and stop spending by households by ratcheting up their commitments to loan repayments. This is to redistribute spending from the typical goods and services bought, to repaying higher loan interest. This is policy. It’s 2025 and we’re still doing this.
The migration and tourist spending honeymoon period appears over now and the RBA has succeeded in crushing demand overall. Compare pre-pandemic consumer demand to where it is now. High rates have had their intended impact of curtailing all spending. We're seeing this come through in higher unemployment figures (from 4.1% to 4.3%), and it cannot be good for the productive capacity of the economy - I.e. slows business investment.
This is a leading reason why I'm not a fan of monetary policy as main lever against inflation. Smashes borrowers’ spending, but less encumbered international students and tourists fill the gap, for a while, prolonging inflation and keeping rates higher for longer. Hurting borrowers who have already stopped spending is not fair!
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