Interest rate rises, cost of living crisis are key factors
Concern over interest rate rises and increases in the cost of living have led Australians to cut back on their spending, according to a new industry report from the Commonwealth Bank of Australia.
The monthly CommBank Household Spending Insights (HSI) Index fell sharply in December, dropping 3.9%.
The CBA report indicated the drop in spending was the cumulative effect of successive interest rate rises as well as consumers bringing forward holiday spending along with a drop in household spending.
Spending drops across range of categories, says CBA
Spending fell in eight of the CommBank HSI Index’s 12 underlying categories, with the biggest fall seen in household goods which was down by 16%, and this included spending on furniture and household appliances.
December also saw declines in recreation spending by 6.5%, food and beverage down 2.7% and hospitality having seen a drop of 0.8%.
These falls were partly offset by increased spending on transport, up 1%, insurance jumping 0.6% and health up 0.2%.
Pattern of November spending continued
CBA senior economist Belinda Allen (pictured above) said the fall in December more than offset the gain of 1.6% in November 2023, and continued the pattern of recent years where strong consumer spending in November was followed by weak results for December.
“Household budgets are undoubtedly constrained with rate rises leading to a weakening of consumer spending,” Allen said.
“Households in all states reduced spending in December, led by declines in Victoria, South Australia and NSW.
“With the pace of economic growth in Australia moderating and the full impacts of November’s rate rise yet to flow through to the consumer, we expect a further slowdown in the pace of household spending over the coming months.
“We have also seen inflation moderate which supports our view that the monetary policy tightening cycle has come to an end and that the RBA can join the expected global shift and start to lower interest rates in September this year.”
CBA predicts cash rate to drop 2024
CommBank is forecasting the RBA will lower the cash rate by 75 basis points in the second half of 2024, starting in September, and a further 75bp in first half of 2025 following the last rise in November 2023.
The CommBank HSI index – which tracks month-on-month data at a macro level and is based on de-identified payments data from approximately 7 million CBA customers, comprising roughly 30% of all Australian consumer transactions – also showed sharp differences among certain states and territories.
The spending insights come after the CBA announced changes to its business lending process in December last year that will allow for shorter decision times for eligible small business customers – from three days to instant.
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