RBA’s fears come true with consumer spending slip - Wells Fargo

According to analysts from Wells Fargo, the latest data for retail sales substantiated the Reserve Bank of Australia’s recent warnings about the sustainability of consumer spending amidst elevated consumer debt. The RBA kept interest rates unchanged on Tuesday. 

Key Quotes: 

“The Reserve Bank of Australia (RBA) has kept its official cash rate at 1.5 percent for a little over a year now. The RBA is faced with balancing rising consumer debt amidst a run-up in home prices. Although there have been some signs of firming in the Aussie economy, a recent miss in consumer spending figures highlights the pressure on many Aussie households at present.”

“We learned this week that Australian retail sales fell 0.6 percent in August which follows a smaller decline in the prior month. Although the RBA meeting occurred before the retail sales print hit the wire, policymakers at the Bank have been highlighting the unsustainability of household debt in recent communications. 

“With inflation still low and wobbly fundamentals in housing, we still see the RBA on hold well into 2018. Going into the week, one could have reasonably expected the RBA to indicate a tightening bias. However after this week’s lousy retail sales figures, which included a downward revision to prior data, one board member mentioned to a U.S. media outlet late in the week that another rate cut cannot be ruled out.”