FXT Economic Data Summary (Asia-Pacific | 09/09)

Australian Consumer Confidence Falls Again

Australia‘s Westpac-Melbourne Institute Consumer Sentiment Index fell 5.2% from 88.9 to 84.4 in September, returning to the weak levels seen earlier this year. Households’ assessment of their finances deteriorated further, with the index tracking finances compared with a year ago falling from 80.0 to 72.6, while expectations for finances over the next 12 months slipped from 98.2 to 94.5. Higher fuel prices added to cost-of-living pressures, while concerns that renewed inflation could prompt another RBA rate hike also weighed on housing sentiment. The time-to-buy-a-dwelling index dropped from 95.7 to 85.5, while unemployment expectations rose from 135.7 to 139.4.

Mortgage holders are particularly sensitive to interest-rate changes. The Mortgage Rate Expectations Index climbed from 158.8 to 170.4, while the share of consumers expecting mortgage rates to rise over the next year increased from 59% to 64%, reaching nearly 73% among mortgage holders. Westpac still expects the RBA to keep rates unchanged at its September 28–29 meeting. FXT analysis suggests that cost-of-living pressures and high interest rates are further restraining household demand, making the RBA more likely to remain on hold in the near term, though persistent inflation could reopen the door to rate hikes.

Japanese Wage Growth Accelerates

Japans wage growth strengthened sharply in July, with nominal cash earnings rising 4.7% year-on-year, up from a revised 4.0% and marking the fastest pace since 1997, well above expectations of around 3.8%–3.9%. Wage growth has now exceeded 3% for six consecutive months, while real wages rose 2.4%, the seventh straight increase and the strongest gain in nearly five years. The improvement was not driven solely by bonuses: special payments rose 6.3%, base salaries increased 4.1%, and a measure of full-time employee wages excluding bonuses and overtime still gained 2.7%.

The wage recovery is also becoming more sustainable. Workers covered by Rengo secured wage increases of more than 5% for a third consecutive year, while the national average minimum wage rose to JPY 1,177 per hour. Persistent labor shortages are also supporting pay growth. However, consumption remains sluggish, with household spending falling for an eighth straight month in July and private consumption broadly flat in the second quarter. FXT analysis suggests that Japans wage growth is developing into a more durable trend, supporting further BOJ policy normalization, although the pace of future rate hikes will depend partly on whether stronger incomes translate into higher consumption.

Energy Costs Drive Eurozone Producer Inflation Higher

Eurozone producer price pressures strengthened notably in July, with PPI rising 1.6% month-on-month after a 0.3% decline, exceeding expectations of 1.2%. Annual PPI inflation accelerated from 4.6% to 5.8%. Energy was the main driver, with prices rising 5.6% on the month after a 1.5% decline, while annual energy inflation increased from 8.8% to 12.9%. Excluding energy, industrial prices were flat after a 0.2% increase, indicating that the sharp headline rise was largely energy-driven.

Cost pressures outside energy have not disappeared entirely. Intermediate goods inflation edged up from 6.1% to 6.3%, while PPI excluding energy rose from 3.0% to 3.1% year-on-year and capital goods inflation increased from 2.3% to 2.6%. Producer prices rose 3.0% month-on-month in both Spain and Italy, 1.1% in Germany and France, and 4.3% in Ireland. FXT analysis suggests that rebounding energy prices are the main force behind the latest increase in producer inflation, but persistent non-energy pressures mean that further energy gains could raise the risk of higher costs being passed on to consumers.

U.S. Services Demand Remains Strong

The U.S. ISM Services PMI rose from 54.1 to 55.4 in August, beating expectations of 54.3 and marking the 26th consecutive month of expansion. Demand was particularly strong, with the Business Activity Index rising from 59.1 to 61.7 and New Orders climbing from 57.2 to 60.9. Backlogs also increased, indicating that services demand remains resilient and economic activity has yet to show a meaningful slowdown.

Hiring continued to lag behind demand, with the Employment Index edging up only from 47.4 to 47.8 and remaining below 50 for a second consecutive month, suggesting that service-sector firms remain cautious about expanding payrolls. Meanwhile, the Prices Index rose from 70.3 to 72.6. FXT analysis suggests that strong services demand, weak hiring and elevated price pressures are creating a more complicated environment for the Federal Reserve, increasing the importance of upcoming employment and inflation data.