In Air Weekly last Friday we told you of the impact the rise in our savings rate would have on banks and retailers.
It’s a huge change, if the recent rise in the savings rate can be sustained.
Now there’s another possible impact, we could get fewer interest rate increases if the savings rate can be sustained.
Last night the head of the Reserve Bank’s Economics Department, Phil Lowe spoke at a dinner of business economists in Sydney and in that speech, pointed out another possible impact of equally major proportions.
He said the recent boost to Australian household savings could reduce inflationary pressures as the economy gears up for more mining investment.
The above graph shows the sharp rise in savings in the past year or two, according to figuires from the September quarter National Accounts.
But Mr Lowe told his audience that it was difficult to know whether there has been a long-lasting change in attitudes towards savings after two decades of rapid increases in household borrowing.
"There are a number of explanations for this increase in household savings in Australia, but it is likely that the most important is a rethinking of attitudes to debt and spending following the events in the global economy over the past few years.
"It would appear that many households now view high levels of debt and low rates of saving as more risky than they did previously.
"This has led some to save a little more and others to borrow a little less.
"And the strong growth in household incomes over the past year has made this easier to do.
"The forecasting issue here is how persistent is this change likely to be.
"Is it just a temporary phenomena that will wane as memories of GFC fade? Or has there been a long-lasting change in attitudes after two decades of rapid increases in household borrowing?
"But the restraint being exhibited by the household sector is turning out to be quite long-lasting.
"In preparing our own forecasts, we have, for some time, been assuming that the household saving rate stays high for quite a while yet," he said.
"If this were to occur, not only would it lead to a lowering of risk in household balance sheets, but it would reduce inflationary pressures during the period of high investment."
Dr Lowe said this was an area the Reserve Bank was watching closely.
"It is one where our approach of testing, learning and re-testing is important as we continue to review our forecasts," he said.
The latest national accounts figures; released last week, show a marked increase in the household sector’s saving rate over recent years with the increase fully reversing the decline that took place from the end of the 1980s to mid 2003.
The rate was 10.2% in the September quarter, which is very high for Australia and will probably be revised lower in future accounts.
But judging by the surge in bank term deposits in the last one to two years (as explained last Friday), savings seem to have risen strongly.
"Somewhat remarkably the measured increase in the household saving rate in Australia has been larger than that in many other countries, including the United States, where the poor state of household balance sheets is weighing on the economy," Dr Lowe said.
"And unlike in the United States, where household confidence is very low, this rise in saving has occurred in Australia at a time when confidence is quite high".
