Australian households should be prepared for further increases in the cost of living as the economy showed the first signs of slowing growth in the first quarter of 2022.
According to a survey by the Australian Bureau of Statistics in May, more than a third of local businesses (38%) are expected to raise prices more than usual.
Of these businesses, 92% cited the increased cost of products or services used as the reason for the price hike, followed by rising fuel or energy prices (78%) and other overhead costs. the company (50%).
Notably, more than half of all businesses in manufacturing, construction, wholesale trade, and accommodation and food services intended to raise the prices of their goods and services over the past few months. next three months.
Meanwhile, 43% of Australian businesses saw their operating expenses increase in May 2022 to the highest level since July 2020. Additionally, one in three businesses expected their expenses to increase in the next month. .
Meanwhile, economic figures released in the week to May 23 suggest Australia‘s economy barely grew in the first quarter of 2022.
Household spending, a major component of the national accounts, rose 1.9% in March, up 6.6% from 2021.
However, construction work was down in the March quarter as the total value of construction work done in the March quarter fell 0.9% to $53.7 billion. This was expected to pose downside risks to economic growth.
In addition, new private capital spending has declined. The total amount of capital used by businesses fell 0.3% to $33.6 billion in the March quarter, a far cry from the 1.3% increase predicted by economists.
Sean Langcake, head of macroeconomic forecasts at BRI Oxford Economics, said the March quarter was not a good time for companies to invest.
“The rapid spread of Omicron cases has left many businesses short-staffed as staff have been forced to self-isolate or take sick leave,” he said.
“Floods in New South Wales and Queensland at the end of the quarter will also have weighed on construction activity.”
Economists at ANZ Bank have forecast GDP to grow just 0.6% in the March quarter. Similarly, AMP economist Diana Mousina predicted a stable growth outcome for the period, which is expected to bring the annual growth rate down to 2.3% from 4.2% previously.
It should be noted that the possible outcomes of weak growth in the March quarter come before the impact of a steady increase in interest rates by the Reserve Bank of Australia materializes.
Commonwealth Bank senior economist Belinda Allen predicted the central bank would raise the key rate by 0.25% at the June 7 board meeting.
It also expects similar rate hikes in the following July, August, November and February.
“This will bring the cash rate to 1.60%,” she said.