“Policy needs to lean more strongly against widening inflationary pressures,” she said.
“As such, we believe the strength of the price and wage measures in the GDP data should be sufficient to convince Governor Lowe that there is a very strong case for deviating from a steady regime. [0.25 percentage point] get moving and get a bit higher cash rate, a bit faster.
The March quarter covered the period when much of southern Queensland and northern New South Wales was hit by deadly flooding. The Treasury expected this to reduce growth by about 0.25%.
ABS found that not only did the economy grow during the floods, but it also defied the Omicron variant outbreak that hit many businesses during the period.
Household spending contributed 0.8 percentage point to growth in the quarter, while government spending added 0.6 percentage point.
Spending on discretionary goods and services rose 4.3% and is now back above pre-pandemic levels for the first time.
Spending on transport jumped 60%, due to the reopening of national and international borders, while spending on leisure and culture (4.8%) and restaurants (5.3%) were also strong. Supply constraints eased on new car imports, contributing to a 13% increase in spending.
Spending on basic necessities actually fell 0.2%. Food spending fell 2% as people were able to eat in cafes and restaurants. Health expenditure has also fallen.
Barrenjoey’s chief economist, Jo Masters, said the household savings buffer, which at 11.4% is more than double its mid-2019 rate of 5.3%, and wage growth should keep consumer spending high.
“The ongoing economic expansion will largely be shaped by how much consumers choose to spend or save,” she said.
Pradeep Philip, lead partner at Deloitte Access, said the figures suggested the economy was on a knife edge.
“There is still a lot of strength in the public sector and households, but the private sector of the economy in areas such as investment still has a long way to go,” he said.
While the economy grew by 0.8%, GDP per capita grew by a much more modest rate of 0.3%. This is the widest gap between the two measures since early 2018.
At the state level, Victoria’s national economy saw national growth of 2.4% in the quarter on strong increases in household and government spending.
State final demand in Western Australia and the Northern Territory jumped 2.2%, while in New South Wales it rose 1.2% and in Queensland 0.8% .
Defense spending rose 5.6% in the March quarter as Defense was called in to provide flood assistance.
Defense spending in New South Wales and Queensland rose 7.8%, while in the rest of the country it was 3%.
Insurance claims have increased dramatically due to flooding. Non-life insurance claims rose 18.6% in the March quarter, with $2.8 billion paid due to natural disasters. The ABS expects the reconstruction effort to contribute to future GDP figures.
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