Key insights from the week that was.
In Australia, this week’s dataflow kicked off with a strong reading from the household spending indicator, lifting 1.0% (6.3%yr) in November. Gains were broad-based across goods and services, up 0.9% and 1.2% in the month respectively, driven by a combination of concerts, sporting events and Black Friday sales. Our timelier measure of card activity is consistent with this and suggests official measures of nominal spending could print close to 2% in Q4. However, it does appear that momentum faded in last couple weeks of 2025 and the start of 2026, although given shifting seasonal patterns, it is difficult to make a full assessment of the underlying pulse.
Still, the re-emergence of outright pessimism in the January Westpac-MI Consumer Sentiment survey provided another reason to be wary of the underlying strength of consumer spending. The headline index slipped 1.7% to 92.9 in January, marking the weakest reading in three months. Consumers have swiftly recalibrated their interest rate expectations in response to higher inflation and more hawkish rhetoric from the RBA – nearly two thirds of consumers anticipate higher mortgage rates over the coming year. This is predominately weighing on households’ expectations, especially for family finances and economic conditions for the year ahead, with both sub-indexes falling below January 2025 levels.
That said, assessments of the current situation remain intact, namely the ‘family finances vs a year ago’ and ‘time to buy a major household item’ sub-indexes, which are 6.5% and 9.1% higher than January 2025 levels respectively. The labour market has played a key supporting role, although it showed some signs of gradual softening over the second half of last year. This week, it was revealed that the total stock of job vacancies edged slightly lower into year-end (–0.2%) and the vacancy-to-unemployment ratio (a broad measure of ‘slack’) continues to move toward more normal levels from an elevated starting point.
Ultimately, prospects for the consumer this year remain uncertain, stemming from various possibilities when it comes to the path for inflation, interest rates and the labour market. In particular, households are clearly concerned about the possibility of rate rises, which if borne out, could hamper the consumer recovery further. Westpac believes that the RBA does not need to tighten policy this year, given relatively more benign inflation pressures across market goods and services ahead and a gradually softening labour market.
Offshore, news was centred around the US.
Markets were squarely focussed on the US Department of Justice’s probe into FOMC Chair Powell and the Federal Reserve, allegedly at US President Trump’s urging. The probe follows Chair Powell’s comments in the June Congressional hearing alongside the out-of-budget renovations of the Federal Reserve Building. This is being interpreted as an attack on central bank independence and yet another attempt by the US administration to influence monetary policy. Chair Powell made a statement to reaffirm his commitment to remaining apolitical in policymaking, while other central bank heads, including RBA Governor Michele Bullock, co-signed a letter in support of Chair Powell. As Chief Economist Luci Ellis elaborates, this public support reflects the shared values of these policymakers and the role of institutions like the BIS to build solidarity.
On data, the December CPI surprised to the downside rising 0.3% in the month and 2.7% over 2025. Core goods were flat in the month while food (+3.1%) and core services (3.0%) accounted for most of the increase. Shelter remains the most prominent driver of services inflation, though this should ease over the year given early measures of rent inflation are starting to subside. Still, capacity constraints due to the impact of immigration policy and lacklustre non-AI capital investment adds upside risks to inflation.
Non-farm payrolls for December rose by 50k, lower than November’s 56k. The unemployment rate fell to 4.4% though much of this was a result of people leaving the labour market — the participation rate fell slightly to 62.4%. Overall, the data suggests that the labour market is beginning to soften from a broadly balanced starting point.
The January Beige Book was broadly consistent with the latest data. On the labour market, respondents noted there was “an increase in the usage of temporary workers” and that “When firms were hiring, it was mostly to backfill vacancies rather than create new positions”. On prices, tariffs were feeding into cost pressures across all districts but contacts in more consumer-focused industries were “reluctant to pass costs along to price-sensitive customers”. With inventories of cheaper, pre-tariff inputs being depleted, many firms will be forced to pass on costs gradually through the course of this year.
We anticipate inflation is likely to remain above target through 2026 while risks to the labour market remain. This should see the FOMC deliver one more cut in March to counterbalance risks to the labour market followed by an extended hawkish pause.
 in November. Gains were broad-based across goods and services, up 0.9% and 1.2% in the month respectively, driven by a combination of concerts, sporting events and Black Friday sales. Our timelier measure of card activity is consistent with this and suggests official measures of nominal spending could print close to 2% in Q4. However, it does appear that momentum faded in last couple weeks of 2025 and the start of 2026, although given shifting seasonal patterns, it is difficult to make a full assessment of the underlying pulse.){kind=link}