Economic Update - May 2024

US consumers seem more Garfield than Furiosa at the moment with some good news on the inflation and consumer confidence fronts in May. Inflation may not be so sticky in the US after all? The Fed Reserve is however still talking tough. Inflation is still looking sticky in Australia though but the EU and the UK look like they are heading towards cuts.

What happened in Australia?

The release of the minutes from the RBA’s Monetary Policy Meeting in May revealed that unlike the March meeting the Board seriously entertained a rate rise. They have, “... limited tolerance for inflation returning to target later than 2026” and acknowledged that a,  “...  higher cash rate might also be required, even with ongoing weakness in aggregate demand, if other factors slowed the pace of disinflation”.

So when monthly inflation showed an increase for the second month in a row, from 3.5% in March to 3.6% in April (see chart below), contrary to expectations of a fall to 3.4%, many commentators conjectured that the scales could be tipping from a rate cut to a rate rise. The chief economist at the Australian Business Council even went as far to suggest that “alarm bells are ringing down at the RBA”.

Such concern is perhaps overblown. Monthly CPI excluding volatile items and holiday travel was flat. Further, unemployment increased 0.2% points to 4.1% in April while the Wage Price Index decreased slightly in the March quarter. This confirmed earlier RBA forecasts that it had peaked in the December quarter (see chart below). Retail turnover was weak again in April.

May is also federal budget month. Beyond the usual spruiking of new policies and pats on the back, the government also went out of its way to assure the RBA that the budget was not inflationary. Sure, the budget included AUD 22.7 billion (over ten years) for a shiny new industrial policy (“Future Made in Australia”) and other increases in spending. However, the government also announced a $300 to $325 energy rebate for households and businesses and a 10% increase in the maximum rate for Commonwealth Rent Assistance. Both of these will help lower inflation. But will it be enough to allay RBA concerns? Both the government and RBA are also looking ahead to the potential impact of the looming stage 3 tax cuts in July. 

“We’re limiting real spending growth to an average of 1.4 per cent per year ... And we are banking 96 per cent of revenue upgrades this year – keeping pressure off inflation while it is still above band.” Jim Chalmers, Australian treasurer.

What happened around the world?


Concerns over the stickiness of inflation from the last two months were lessened by core CPI falling for the first time in six months (see chart below). While the Fed’s favourite inflation measure PCE was flat for April, as expected. A smaller than expected monthly increase in personal spending for April, 0.2% on a monthly basis, was also seen as favourable news in terms of the outlook for inflation and interest rates. 

With renewed hopes of a rate cut, the US stock market recovered the ground it lost in April. Another round of outstanding Nvidia earning results also helped push the market up. Nvidia’s stock price jumped almost 6% after surpassing earnings expectations   

However, several comments from Neel Kashkari, Fed Reserve President from Minneapolis, during the month tempered optimism on rate cuts. He wrote and spoke on whether interest rates were restrictive enough and also said that he expected rates to be on hold for a long while yet with many months of positive data needed to change his mind.

“...  we probably need to sit here for a while longer until we figure out where underlying inflation is headed before we jump to any conclusions.” Neel Kashkari.

A slight increase in consumer confidence In May after three months of decline seems to support Kashkari’s narrative that the US economy is not slowing down fast enough.

The FOMC kept rates unchanged when they met at the start of the month.


The IMF revised China’s GDP up slightly to 5% for 2024, citing good economic growth in the March quarter and recent policy measures. However, it warned that China’s ambitious export-oriented industry policies could hurt future growth and productivity because of a “... misallocation of domestic resources”, and trade frictions.

Critics of Chinese economic policies are currently lining up. Paul Krugman recently called the government’s unwillingness to stimulate domestic demand “bizarre” and also raised concerns about China’s industrial policies.

“ ...the world will not accept everything China wants to export,” Paul Krugman.

Long-time China watcher, Anne Stevenson-Yang, recently said that the Chinese economy was at a “dead-end”.

“Years of erratic and irresponsible policies, excessive Communist Party control and undelivered promises of reform have created a dead-end Chinese economy of weak domestic consumer demand and slowing growth.” Anne Stevenson-Yang.

Chinese factory activity contracted in May after increasing in March and April (see chart below). This reflects weak domestic demand rather than any response by China to foreign warnings on export growth.

As for the property market, it will continue to struggle for a while but some large cities have recently lifted qualifying restrictions on real estate purchases which will help encourage national demand a little.


Euro area inflation increased slightly from 2.4% to 2.6% in May on a yearly basis - the first increase since December 2023. Services inflation remains the dominant driver (see chart below).

Despite this slight uptick in inflation, the ECB is unlikely to be too troubled as it believes that inflation is under control and heading down. Most commentators tip a rate cut when the ECB meets in June.

“Even if inflation does not smoothly decline during the rest of 2024, further disinflation can be expected in the course of 2025.” Philip R. Lane, member of the Executive Board of the ECB.

“I'm really confident that we have inflation under control,"  Christine Lagarde, ECB president.

The Euro area grew 0.3% in the March quarter up from the recessionary -0.1% in each of the September and December quarters in 2023.


Japanese GDP fell 0.2% in the March quarter which was larger than expected. Japanese consumers are spending less. While nominal wages have been increasing for the first time in years, they are not growing as fast as inflation at the moment. It will be hard for the BOJ to raise rates again in the near future. However, expect the weaker yen to have a positive impact on exports and growth in the upcoming quarters.


Prime Minister Rishi Sunak stood in the rain and surprised his party by announcing an earlier than expected election. He will be hoping that improving economic news will help his cause.

The UK exited recession in the March quarter with a 0.6% increase compared to the previous quarter. Inflation decreased from 3.2% in March to 2.3% in April on a yearly basis - its lowest level since July 2021.

New Zealand

The government delivered a “responsible” budget aimed at a slowing economy. It provided tax relief but also counterbalanced it with lower spending in selected areas. Unemployment is expected to hit 5% by the end of the year with over 2,000 New Zealanders a month emigrating to Australia.

“This budget won't fix all of New Zealand's economic challenges on its own and there is much more to do, but it does show what is possible with care and discipline,” Nicola Willis, New Zealand finance minister.

What this means for Australian Private Debt

It is still “higher rates for longer” in Australia and the US but rate cuts are looking more likely to happen in the US first. However, we are moving closer to rate cuts in the Euro Area and the UK. Private debt investors can continue to enjoy high floating rates as economies continue to gradually slow.