Wednesday might have surprised the RBA, with the economy slowing faster than expected and inflation falling quicker than predicted by economists. And it’s possible that the RBA boss, Dr Phil Lowe, might have said “whoops” or possibly “you little beauty.”

Headlines in newspapers and websites aren’t about the central bank’s success — remember Dr Phil is trying to kill inflation via an interest rate squeeze on borrowers — with yesterday’s data drop giving us early signs that households are really starting to feel it.

The economy grew by only 0.5% in the December quarter, which translates into an annualised growth rate of 2%. But economists expected a 0.8% expansion, which would annualise to 3.2%. That would be good historical growth, but 2% is sub-normal and is probably a sign of things to come.

The ABS points out that this low number was helped by lower imports (because the economy is slowing) and higher exports from the return of foreign students!

If you add up the past four quarters of growth, it was 2.7% compared to 5.9%. That’s a slowdown that could have the RBA’s board wondering if they’ve overdone the rate rises.

Obviously, Dr Phil will be watching other data to see if he needs to ease up or even stop his mad assault on inflation using the blunt economic tool called interest rate hikes. He has done nine hikes in 10 months, which is the fastest monetary policy tightening ever for the land of Oz!

The AFR pointed to these big takeaways from the data:

1. Households spent 4% of their gross incomes on mortgage interest, the highest level since 2015.
2. Personal income taxes jumped to 15.7% of household earnings (its highest level in two decades) via bracket creep, where higher wages push us into higher tax brackets.
3. The household saving ratio fell to 4.5% — the lowest since 2017.
4. There was a 1.4% real fall in private business investment.
5. And the monthly inflation reading fell — a 0.4% drop in January after a large 1.6% rise in December, taking annual growth to 7.4% when economist tipped a rise of 8.1%.

Westpac’s chief economist, who has tipped seven rate cuts next year, told the AFR that “the pressures from rising interest rates and falling real wages were weighing more heavily on household spending than expected at this stage of the cycle”.

He did not say this but he would’ve thought it: “If this trend keeps up, we will see rate cuts later this year, not next year!”

Evans pointed out that inflation might be too high now but “…wage pressures are easing – exerting even more pressure on the household sector through persistent falls in real wages”.

Real wages are a term used by economists for what someone can buy with their wages. It’s all about the cost of living compared to wages. And the story there isn’t great.

Here are some of the side effects of the rate rises on the cost of living:

1. One in 10 of the parents surveyed for Finder's Parenting Report 2023said their children had had to go without food at some stage in the past year.
2. A significant 27% of parents said their children had missed out on holidays, while 18% said their children had had to forgo extracurricular activities. And 17% said their children had missed out on new clothes.
3. The UNSW Poverty in Australia 2022 Report found there are 761,000 Australian children living below the poverty line — that’s $489 a week for a single adult and $1,027 a week for a couple with two children.
4. Expatisan estimates the current cost of living alone in Australia is around $3,766 a month, compared to $7,065 a month for a family of four, covering bare essentials. That makes Australia one of the most expensive places in the world to live, ranked 11th out of 69 countries. (SMH)

This will only get worse and intensify the pressure on families and individuals when 800,000 Australians on a fixed mortgage face a major shock of going from fixed rate home loans to variable mortgage rates. The RBA’s Marion Kohler told the Senate Select Committee on the Cost of Living in February, that this equates to about “…$350 billion in credit rolling off from fixed to variable interest rates in 2023.”

That’s going to really slow down spending and inflation and Dr Phil knows it. He now must decide to stop raising rates or keep his fingers crossed that we could cop more pain to drive inflation down without a recession.

But that’s a national recession I’m talking about. Right now, there are many households and individuals in their own personal recession, while others are in a great depression!

That mortgage cliff worries me. And I bet it’s worrying Dr Phil.