"Indeed the lift in the household savings ratio to 9.7% today, largely reflects that one-off transfer from government savings to household savings– and that’s it. There has been very little in the way of an autonomous lift in household savings outside of government transfers. This is a very dangerous myth. In the absence of those government transfers, the household savings ratio would likely be around 3% (well below the historical average).
A the end of the day it is only a fairly sloppy and lazy glance at the data that has led some, including the RBA, to conclude that consumers are being cautious. The [below] charts show just why I am completely contemptuous of the idea - it lacks any merit – yet it has huge policy implications. This is why I continue to expect the RBA to eventually wake up to reality and drop this concept from their commentary. Failure to do so could result in a fairly serious policy error.
So, the bottom line is that the Aussie economy is very healthy - driven by solid consumption growth and a pick-up, soon to be boom, in private investment. That’s why jobs growth has been strong (including in the retail space) and why the unemployment rate hovers around 5%. The sooner the RBA realises this, the better it will be for all of us. Early action now, reduces the need for destabilising action later."
