The Australian economy raced back after the impact of last year’s Delta lockdowns, led by a strong rise in household consumption.
The December quarter national accounts released on Wednesday showed the economy grew by a hefty 3.4 per cent, rebounding from a 1.9 per cent contraction in the September quarter.
Annual growth rose to 4.2 per cent.
“Domestic demand drove the growth this quarter, with high levels of household spending, particularly in the states that emerged from COVID-19 lockdowns,” Australian Bureau of Statistics acting head of national accounts Sean Crick said.
“Household spending in NSW, Victoria and the ACT rose 9.6 per cent, compared to the rest of Australia which rose 1.6 per cent.”
Reserve Bank of Australia governor Philip Lowe says the economy has since proved resilient in the face of the Omicron variant, but warned the war in Ukraine is a new major source of uncertainty.
After leaving the cash rate unchanged at a record low 0.1 per cent at Tuesday’s monthly board meeting, Dr Lowe said there were uncertainties about how persistent the pick-up in inflation will be, given recent developments in global energy markets and ongoing supply-side problems.
“While inflation has picked up, it is too early to conclude that it is sustainably within the target range,” Dr Lowe said.
“The board is prepared to be patient as it monitors how the various factors affecting inflation in Australia evolve.”
Economists expect the RBA will lift the cash rate later this year, but the timing of the first move is finely balanced.
The RBA expects the unemployment rate to fall under four per cent by the end of this year, while underlying inflation is projected to move above the two to three per cent target band and stay elevated.
“The potent mix means that the RBA will eventually need to move rates higher to dampen inflation,” St George chief economist Besa Deda said.
“But at the same time, the RBA wants to hold rates low for as long as possible to support the recovery from the pandemic.”
She said the risks from the war in Ukraine are of higher inflation, and possibly weaker global growth, depending on how events unfold.
Cost of living pressures are already being felt across the country with record petrol prices alone biting into household budgets.
The latest National Australia Bank wellbeing survey shows one-in-five Australians have missed a bill or loan payment in the past three months, while 75 per cent are trying to save but are challenged by debt repayments, bills and everyday spending.
More than 40 per cent of all adults reported a decline in their savings in the past three months.