As I have now said too many times to count, consumers aren't staying cautious unless they have continued incentives to do so. That means an increasingly high (risk-free) opportunity cost of consumption. Or, in Paul Bloxham's words in the context of yesterday's RBA minutes:
"Here is where the story gets really interesting. The Reserve Bank is telling us that the current restraint in household spending is required: and that if we did not have it, aggregate demand would be growing too quickly and inflation pressures building. Taken literally this suggests the saving rate needs to stay at its current very high level or more restraint will be required. So if you believe, as we do, that the saving rate won't stay at it current historically high level all on its own - and something will need to restrain it - then you also have in mind that interest rates will need to rise further. This narrative is not a new one, but it is bit more explicitly mapped out in these minutes than in previous statements.
Finally, it is also worth noting that since the December Board meeting (7 December) we have received an upside surprise on the labour market, some solid consumer sentiment data, and an improvement in the global story, although the business sentiment numbers have weakened a little."
