Consumer Market Bites

Transcript

Andrew Aoukar:

Hi, and welcome to PwC’s Consumer Markets Bites Series.

My name is Andrew Aoukar, I’m a Director in PwC’s Consumer Markets Consulting practice.

PwC’s Consumer Markets Bites Series was created to share bite sized content on the latest insights from PwC and hear from some of our clients from across the consumer markets industry. 

On today’s episode, we’ll be joined by PwC’s chief economist, Amy Lomas, who will dive into the key economic trends shaping Australian households' spending as the festive season approaches.

Amy will discuss the impact of rising interest rates, inflation, and how these factors have influenced consumer behaviour and retail markets.

Amy will also offer some insights into what we can expect moving into 2025 and how potential changes to both fiscal and monetary policy in Australia and abroad could impact the consumer landscape.

Over to you, Amy.

Amy Lomas:

Hello and thank you Andrew. My name is Amy Lomas, PwC’s Chief Economist. 

Today, we're diving into the economic trends affecting Australian households and what it means for your spending as we head into the festive season and beyond.

Over the past two years, household spending has been falling across both goods and services. This trend started right around the time the Reserve Bank of Australia began increasing the cash rate target.

About 35% of Australian households have mortgages and the rise in the cash rate has increased loan repayments for these households, making it tougher to manage day-to-day expenses.

Inflation has been another big factor. It started with rising costs for goods and then moved to services like school fees and insurance. This double whammy has really eaten into household purchasing power and reduced disposable income.

But on the flip side, rising house prices have increased household wealth. So, while people may have less to spend, the households that own property, their wealth has increased.

Retail has been one of the hardest-hit sectors. Monthly turnover rates have been steadily declining since August 2022, showing just how subdued consumer markets have been.

But there is a glimmer of hope. Inflation is almost at the point of entering the RBA's target range of 2-3%, which means cash rate reductions are on the horizon. This could signal the beginning of the end of a particularly tough economic period. 

Additionally stage 3 tax cuts are starting to flow through, increasing real disposable income. Combined with slowing price growth, we may see some improvement in spending as we move into Black Friday and the pre-Christmas season.

However, households are saving more of their tax cuts than they are spending. Discretionary spending on treats like eating out has shown some improvement, but people are still judicious with their money. This means Black Friday and pre-Christmas sales might see a lot of interest, as a way of managing Christmas costs, but potentially at the expense of January sales. 

Market analysts are cautiously optimistic. They believe that if inflation continues to trend downward and interest rates are reduced, we could see a resurgence in consumer confidence and spending. And recent surveys show a slight uptick in consumer confidence, suggesting that people are beginning to feel more positive about their financial future.

Retailers are adjusting their strategies, offering more discounts and value deals to attract cautious consumers. This means we might see more targeted promotions and competitive pricing as retailers try to entice shoppers.

Looking ahead to 2025, consumer spending will depend on several factors: 

• cash rates coming down

• inflation stabilising within the 2-3% range, and 

• fiscal initiatives linked to the federal election. 

Globally, we also must consider potential cost pressures from further shipping disruptions, as well as conflicts in the Middle East that could impact fuel supplies.

Assuming we can avoid these risks, households will have more purchasing power and disposable incomes. And in terms of how this is spent, we’re seeing a shift in spending patterns where consumers are prioritising essential and value-driven purchases over luxury items. This indicates that while there is room for optimism, caution will still play a significant role in consumer behaviour.

So, as we move into this festive season and look forward to 2025, there's room for cautious optimism.  

Thanks for watching today, further episodes in our Consumer Bites series will be released in the coming months.