As in other advanced economies, private debt levels rose rapidly in the early part of the twenty-first century, due to strong household credit growth. But, since the GFC, private debt levels have tended to stabilise and the household saving rate has increased. This is despite a large increase in wealth associated with rising house and equity prices.
The path of consumption and the relationship between consumption and wealth is crucial to the Reserve Bank of Australia’s (RBA) and the Reserve Bank of New Zealand’s (RBNZ) assessment of business cycle dynamics and inflation prospects. Indeed, weaker spending out of wealth than expected is part of the reason why inflation has been lower than forecast in New Zealand.