Bullock said the lift in interest rates had contributed to the slowdown in spending among households. Some of that slowdown was being done by shoppers moving to cheaper brands as they were still trying to save money.
“People are adjusting their consumption to their current income rather than relying on their savings to fund their consumption,” she said.
Figures released by the Australian Bureau of Statistics on Friday, however, suggested the slowdown in spending by households is gaining speed.
After a weak December, spending by households through 2023 increased by just 2.3 per cent. It was the weakest 12-month result since February 2021. Once population growth and inflation are taken into account, spending per person actually fell.
Non-discretionary spending lifted by 5.4 per cent but expenditure on non-discretionary goods and services slipped by 0.6 per cent. Separate figures from the business level showed turnover dropped in eight of 13 industry sectors in December, with retail down by 3.3 per cent.
KPMG chief economist Brendan Rynne said the outlook for the first half of this year was looking tough given how the economy had slowed through the final six months of 2023.
“Higher interest rates and low consumer confidence have finally had a significant impact on economic activity, with measures of real household disposable income, consumption and savings showing a noticeable pullback compared with a year ago,” he said.
A key concern for the RBA has been the level of price rises for services. On Friday, Bullock said that while the prices for goods were coming down a little quicker than expected, the inflation level for services still remained high.
But the Commonwealth Bank’s head of Australian economics, Gareth Aird, said there were positive signs that services inflation was coming down.
He said the six-month annualised services inflation rate was 3.4 per cent, lower than the 3.8 per cent for goods inflation over the same period.
“We are comfortable with our call that services inflation won’t prove sticky, particularly as demand continues to cool and the labour market further loosens,” Aird said.
“Indeed, we expect both goods and services inflation to dissipate a little more quickly than the RBA anticipates.”
The Commonwealth Bank is tipping the RBA will start cutting rates from September, slicing the official cash rate to 3.6 per cent by year’s end.
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