Rates may hold for rest of year as Australians struggle under rising costs

The Reserve Bank may hold interest rates steady for the rest of the year as consumers struggle to deal with cost-of-living pressures just as businesses ramp up spending on data centres to levels on track to dwarf the early 2010s mining boom.

Economic growth through the first three months of the year slowed to 0.3 per cent, the Australian Bureau of Statistics reported on Wednesday, as shoppers started to feel the financial hit from high oil prices and the RBA’s February and March rate hikes.

Annual growth remained steady at 2.5 per cent, largely in line with market expectations.

Household spending, which accounts for more than half of total economic activity, lifted by 0.5 per cent last quarter, driven in part by extra expenditure on electricity and gas due to the end of government subsidies.

But in a sign of the hit facing consumers, spending on essentials rose by 0.8 per cent, while discretionary expenditure rose by just 0.1 per cent. Spending on footwear and household equipment dropped by 0.5 per cent while expenditure on eating out at the nation’s cafes and restaurants was flat.

The March quarter results predate the cut in fuel excise, which helped push petrol prices down to around the level they were at before the US and Israel’s war against Iran, and also do not include the RBA’s May rate rise.

While productivity dropped through the quarter, labour costs – a key concern of the Reserve Bank – eased slightly.

As consumers struggle, the data centre revolution and private business investment are holding up the economy.

Private business investment jumped by 6 per cent, driven by a 30-year-high increase in machinery and equipment. In NSW, private capital spending lifted by 9.5 per cent, while it jumped by 3.5 per cent in Victoria.

Through the first three months of the year, NSW businesses spent a record $43.6 billion on new equipment, machines and buildings, while Victorian firms spent an all-time high of $34.6 billion.

The two states are at the centre of the AI-data centre boom. Their expenditure dwarfs what was occurring in Western Australia during the early 2010s mining boom when spending there reached a peak of $32.6 billion.

Almost all of the equipment needed for data centres is imported. That meant net trade detracted 0.8 percentage points from growth, offset by the 0.7 percentage point gain caused by the lift in business investment.

The overall result was also affected by weather events. A series of tropical cyclones, including Koji, Luana, Mitchell and Narelle, through the first three months of the year affected mining and transport-re