Spending takes a hit from the ongoing effect of interest rate hikes
Household spending declined in October as the ongoing impact of interest rate hikes took a toll on Australians, Commonwealth Bank has reported.
The monthly CommBank Household Spending Insights (HSI) Index dropped 1% in October, settling at 139.8, driven by declines in spending across recreation, hospitality, and food and beverage sectors.
Breakdown of household spending
The CommBank report showed that while spending on essential goods and services saw a modest uptick of 0.3%, discretionary spending experienced a significant downturn of -3.7%.
Of the 12 underlying categories in the CommBank HSI Index, seven saw a decline in spending, with recreation (-4.7%), hospitality (-4.5%), and food and beverage (-1.3%) recording the most substantial falls.
The weakness observed in the above-mentioned categories was partly offset by an increase in spending on utilities (+22%) and transport (+2.0%) as households cope with elevated energy costs and petrol prices.
Latest CommBank HSI Index explained
Stephen Halmarick (pictured above), CBA chief economist, said October’s CommBank HSI Index demonstrated a clear tightening in consumer spending compared to the prior month’s result, which was buoyed by several one-off events such as the FIFA Women's World Cup.
“We are clearly seeing the flow-on effects of the interest rate increases from earlier in the year,” Halmarick said in a media release.
“Last week’s decision from the RBA to raise the cash rate by a further 25 basis points, to 4.35%, is likely to add further downward pressure to household spending over coming months. However, November will be an interesting one to watch with potential increases in spending due to the November sales.”
The CommBank HSI Index, derived from de-identified payments data from approximately 7 million CBA customers, offers a macro-level perspective, encompassing around 30% of all Australian consumer transactions. To provide a more accurate depiction of household spending, the data has been refined, incorporating buy-now-pay-later data and excluding categories related to investments.
Mixed household spending results regionally
Notably, CommBank’s October data unveiled distinct regional variations, with the Northern Territory experiencing the most robust growth in household spending at 1.1%, followed by Tasmania at 0.5%.
Halmarick said the index highlighted the divide between the east and the West.
“There is a clear east versus west divide, with New South Wales and Victoria the weakest of the states, likely driven by how highly leveraged these states are,” he said.
Victoria posted a substantial decline in spending in October, down 1.5% for the month, while New South Wales fell by -0.9%.
Read the HSI Index - October 2023.
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