Consumers ultra-conservative despite growth

Consumers have continued their caution in spending and borrowing, despite strong growth in national income, according to the Reserve Bank of Australia.


Speaking on behalf of the RBA’s March monetary policy meeting, RBA governor Glenn Stevens said although the household and business sectors do not appear to be under financial stress, both continue to show more caution in their borrowing behaviour.


“[This trend is] evidenced in slower rates of credit growth over the past couple of years,” Stevens said in a statement.


“Asset values have generally been little changed over recent months and overall credit growth remains quite subdued, notwithstanding evidence of some greater willingness to lend.”


“Yet business balance sheets generally are being strengthened, and the run-up in household leverage has abated.”


The RBA did, however, point out that most business surveys showed a decline in current conditions in January, with substantially less hours worked in Queensland as a result of the floods and Cyclone Yasi.


“The effects of the natural disasters over the summer have reduced output, but production levels should recover over the months ahead and there will be a mild boost to demand from the rebuilding efforts as they get underway,” it said.


The RBA said the effects of Cyclone Yasi will add to CPI inflation in the short-term, but the effects are likely to be reversed later in the year.


“The board’s approach would be to look through temporary effects caused by extreme weather events and to continue to set monetary policy based on the medium-term outlook for growth and inflation,” it said.


“Overall, looking through these temporary effects, the bank expects that inflation over the year ahead will continue to be consistent with the 2% to 3% target.”


Meanwhile, RBA figures show credit card transactions fell 20% in January as natural disasters slowed consumer spending even further.


According to the RBA, the average credit card balance shrank by $101 in January to reach $3,214, and grew just 0.8% in the 12 months to January; its slowest rate in 16 months.


The slowdown in borrowing and spending has been felt in shops, with retail sales growth of just 1.8% in January.


CommSec economist Savanth Sebastian says the credit card data confirms consumer caution has persisted into early 2011, saying consumers are being ultra-conservative as they much prefer to “live within their means”.


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