Borrowers are shrugging off high interest rates to take out home loans and splurge on a new car, adding to evidence that the Reserve Bank of Australia may have more work to do to slow demand in the economy.
Car loans jumped more than 9 per cent in value May and borrowing to buy a home climbed 4.8 per cent to reach almost $25 billion. At the same time, building approvals surged more than 20 per cent as a large number of projects, particularly apartment developments in New South Wales, got the go ahead.
The results follow the release of data showing a 0.7 per cent rebound in retail spending in May and continued strong demand for workers. House prices have also resumed climbing after falling modestly last year and early this year.
The results may be enough to convince the Reserve Bank board to raise the official cash rate to 4.35 per cent on Tuesday despite figures showing inflation slowed to 5.6 per cent in May - its slowest pace in more than a year.
Even before the latest data on lending and building approvals, many economists have been warning borrowers to brace for more rate hikes. ANZ economists tip a July 4 rate rise and investors have almost fully priced in a 0.25 percentage point lift in the official cash rate by early August.
The prospect of even higher interest rates, combined with a relentless rise in living costs - not least an expected leap in energy bills from this month - is likely to heighten the pressure on the federal government to use its revenue windfall to provide increased cost-of-living relief for households.
Strong global demand for commodities and the nation's tight labour market have generated billions in extra revenue, with the government expected to report a surplus in excess of $20 billion for the 2022-23 financial year.
Treasurer Jim Chalmers has so far refused to be drawn on the eventual size of the surplus and said last week the government was "not contemplating" more living cost support for families.
But asked if the government would consider increasing its assistance, the treasurer said "I'm not contemplating more support or floating more support".
Instead, Dr Chalmers has highlighted the reduced pressure on household finances from falling petrol prices.
Government figures show there has been a 37 per cent fall in the average daily cost of fuel in Canberra since July last year, when it reached $2.22 a litre.
The biggest price drop in the past 12 months was in Melbourne (55 per cent), followed by Perth (48 per cent), Brisbane (46.3 per cent) and Sydney (44.4 per cent).
Dr Chalmers said it was "pleasing" to see fuel prices dropping.
"We understand Australians are doing it tough with cost-of-living pressures and in a world where inflation has been persistent, it's good to see these average prices come down a bit since they were at their highest in the middle of 2022," he said.
The treasurer has asked the consumer watchdog, the Australian Competition and Consumer Commission, to monitor petrol prices and said the regulator has been doing "a good job".
"Petrol prices are volatile but we want to see motorists get a fair deal, which is why the ACCC is keeping a close eye on fuel prices across the country," he said.
Commonwealth Bank chief economist Stephen Halmarick said the big surplus would help in bringing inflation down.
"This tightening in fiscal policy should help monetary policy bring inflation back towards the 2 to 3 per cent target," Mr Halmarick said, noting that the government has become a net lender in the economy for the first time since before the pandemic.
But he warned the improvement in the budget position was likely to fade as the economy slows and the jobless rate picks up. Nevertheless, the CBA economist said the deficit in 2023-24 would be "modest" and less than $13.9 billion.