But can we say this has much to do with monetary policy settings? Our real interest rates have averaged around –0.5% since 2009, reflecting accommodative monetary conditions. Meanwhile, household spending has slowed amid 7 greater emphasis on working down household debt levels.
Lower nominal interest rates have increased cash flow to households and this is going in part to debt service and debt reduction rather than consumption and taking on new debt. This makes sense – future expected real growth in income is low relative to future potential interest payments on new debt. Improving household balance sheets will create space for future consumption growth.