Rising Australian interest rates might be near peak

I sat down today to record a quick video analysing October’s retail sales numbers. These figures, particularly noteworthy due to their deviation from expectations, hint at a potential shift in economic direction. I don’t really like paying too much attention to retail sales numbers because they can move around a lot.

But these, combined with last week’s RBA meeting minutes, have got me thinking that perhaps the Aussie consumer is finally starting to feel the pinch and a slowdown in economic activity is imminent. This of course means that rates might be near their peak and could potentially start falling mid-late next year.

I go through these points and others in the video. If you don’t have time to watch, my points are:

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• Retail Sales Indicators: October's retail sales numbers fell by 0.2%, indicating a downturn contrary to the expected moderation, despite a strong previous month. This unexpected decrease, especially in a robust employment and high inflation environment, raises questions about the underlying economic strength.

• Sector-Wide Impact: The decline was broad-based, with notable reductions in clothing, goods retailing, department stores, and food services. This suggests a general consumer pullback.

• RBA's Rate Decisions: The Reserve Bank of Australia's (RBA) recent rate hikes aimed at balancing demand and supply to address inflation may be influencing consumer sentiment and spending patterns.

• Long-Term Economic Implications: The slowdown in consumer spending, coupled with potential changes in migration patterns, could lead to a reassessment of the economy's strength. This may affect future RBA decisions and the overall trajectory of interest rates and inflation.

• Real Estate Market Outlook: Despite these trends, the lack of supply in the real estate market suggests that property prices may remain resilient. Property investors should closely monitor these economic shifts and RBA actions for potential impacts on the market.

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The October retail sales figures, along with other economic indicators, suggest a possible economic slowdown and a reassessment of consumer strength. This could influence the RBA's future decisions, potentially leading to changes in interest rates and the Australian housing market by mid-2024.

I really think we are at or near the peak and rates. Good news for patient property investors.

Peter Esho is an economist and Founder of Esho Group. He has 20 years of experience in investments and markets.