Household savings will fuel inflation

News of the RBA slowing or stopping rate increases is overdone. The RBA's inflation fight is far from done. During the pandemic period, Australia households stashed away $465 billion in savings, or which $294 billion was excess saving (that is savings above the long term saving rate).

One way to think of savings is as deferred demand. Rather than spending the money now, and creating demand for goods and service now, a household can save that money and spend it later, decreasing demand now, but increasing demand for goods and services at some-point in the future when they decide to spend that money.

Unlike in America, Australian's are yet to start tapping into that savings pool to fuel their spending. In fact, as at 30 June 2022, the savings rate in Australia was still well above the long term average (8.7% vs 6.3%).

This means there is still a lot of deferred demand waiting to be deployed in Australia. More than enough to keep inflation well above trend for several quarters without further intervention by either government of the RBA.