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As we approach the end of 2022 at a rapid pace, we continue to see signs of uncertainty across the economy. A host of global and domestic issues are fuelling this, including record levels of inflation caused by knock-on effects from the COVID-19 pandemic, the war in Ukraine, challenges in global supply chains, and strong consumer demand. Meanwhile, Australia is experiencing increasing interest rates, a slowing economy, and a hard employment market. Many of these economic headwinds continue to impact the insurance market too, flowing through to businesses and consumers.
In August, the Australian Bureau of Statistics (ABS) reported the annual Australian inflation rate had reached 6.1% in the June quarter, the highest recorded rate since 1990. Inflation continued on this upward trajectory, hitting 7.0% in July*, and is forecast to peak at 7.75% in the December quarter of 2022. Optimistically, the annual CPI index fell in September to 6.8% and annual inflation is expected to start falling from 2023 and continue through 2024.
Australia’s Reserve Bank (RBA) has responded to inflation in a similar way to many other central banks around the world: by raising interest rates. This means that a higher proportion of household incomes are now going towards paying interest on mortgages with the overall aim of slowing consumer demand and therefore, inflation. Figure 2 highlights this sharp series of increases in interest rates in 2022.
Meanwhile, the latest data indicates there is very little capacity left in the Australian labour market. The participation rate is at a high of 66%, while record low rates of unemployment and underemployment continue to decline (see Figure 3). At the same time, the number of job vacancies has been growing, with only 1.3 unemployed persons per job vacancy in the most recent data (ABS, 2022). This remains a challenge due to limited migration to Australia.
Insurers continue to face the same host of macroeconomic and geopolitical challenges that are inhibiting growth and profitability more broadly. These include the looming threat of a global recession, ongoing fallout from Russia’s invasion of Ukraine, rising interest rates and inflation, and lingering COVID-19 concerns. Mirroring trends in the broader economy, employment continues to challenge the industry to find solutions to enhance efficiency and customer solutions.
