Australians have almost emptied their piggy banks to fund spending spree

But that is not what the numbers say. Not yet, anyway.

While households might be feeling the pinch, it was not enough to stop them spending up big on airfares, hotel rooms, eating out, household goods and electronics in the lead-up to Christmas.

Such was their willingness to spend that prices for discretionary goods and services jumped 2.6 per cent in the December quarter, growing at double the rate of prices for life's basics.

Vladimir Putin's invasion of Ukraine has been blamed for triggering the energy crisis that sent fuel prices and many other costs soaring last year.

But the fact is inflation was already on the march in Australia well before then.

After dipping briefly into negative territory in mid-2020 at the height of the pandemic, the consumer price index has been steadily rising ever since (aside from a blip in mid-2021 when it slid from 3.8 to 3 per cent during the Delta wave).

Understandably enough, given huge uncertainty about what would happen, Australians saved like squirrels during the most intense periods of the COVID outbreak. In July 2020 the household savings ratio hit an extraordinary 23.6 per cent and was still at close to 20 per cent by the end of 2021.

READ MORE:

But it has collapsed since then as people, feeling more secure because of the very tight labour market, have depleted their piggy banks to help pay for everything from new homes and overseas holidays to upgrading appliances and refreshing the wardrobe.

The good news for the Reserve Bank is that households have now significantly depleted their savings while wages are growing only modestly, holding out the prospect that spending will eventually slow.