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Household spending craters as cost of living crunch continues


Household spending growth has collapsed in the last 12 months as persistent price pressures and an aggressive round of rate rises force families to tighten their belts.

According to fresh figures from the Commonwealth Bank on Wednesday, growth in household spending was up just 2.3 per cent in the 12 months to August. A year ago, household spending was growing at 18.7 per cent on an annual basis.

Soaring international student arrivals and cost pressures pushed consumer spending higher in August. Despite ongoing inflationary pressures, households still opened their wallets to splurge on World Cup tickets as Matildas mania gripped the nation.

The data, which showed growth in household spending rose 0.7 per cent in August, is based on payments data from 7 million Commonwealth Bank customers, equating to 30 per cent of total spending across the country.

Queensland recorded the strongest monthly spending growth during August, up 1.5 per cent, followed by Tasmania and the ACT, up 1.3 and 1.1 per cent respectively. Spending in South Australia fell 0.2 per cent, but is up 4.5 per cent over the year.

Despite a small gain in August, the data showed Victoria was the weakest state for household spending which has flatlined in the last 12 months.

The figures follow a softer July reading which showed spending in Australia’s two largest states – Victoria and NSW – were in outright decline as households cut back to cover higher mortgage repayments.

Surging international student enrolments in Australian universities saw education spending grow by 2.8 per cent in August, with the annual rate of spending swelling by 14.7 per cent, up from 9 per cent in the year to July.

International student numbers hit a record earlier this month with new government data revealing approximately one in 40 people living in Australia – or 855,000 people – are on student or graduate visas.

A likely late rush for tickets to the FIFA Women’s World Cup pushed an increase in ticketing services, up 70 per cent, to ultimately contribute to a 1.9 per cent growth in spending on recreation in August.

Bookings for commercial air travel, cruise holidays and accommodation also contributed to the recreation spending increase, up 8.4 per cent in the last 12 months.

RBA’s rate hikes a handbrake on households

The figures come as the Reserve Bank works to curb consumption growth in an effort to bring inflation, which currently sits at 4.9 per cent, back to the bank’s 2 to 3 per cent target range.

However, the central bank must avoid a rapid decline in consumer spending that could potentially induce a recession.

Fresh GDP numbers released last week showed while the economy expanded by 0.4 per cent in the three months to June, economic growth per person went backwards for the second consecutive quarter, otherwise known as a ‘per-capita recession’.

Commonwealth Bank chief economist Stephen Halmarick said the household spending continued to remain subdued as the consequences of the RBA’s efforts to slow growth washed through the economy.

“The effects of 400bp of Reserve Bank of Australia interest rate rises is clearly reflected in a significant slowdown in annual household spending growth measured by the CommBank HSI Index.” Mr Halmarick said.

Cost crunch alters spending habits

As cost of living pressures remain acute, households are cutting back on heading out to hospitality venues, with spending plummeting by 2.1 per cent in August.

Encouragingly, government rebates and subsidies to cover higher energy costs helped lower utility costs which fell 0.8 per cent over the month, following an earlier 1.1 per cent decline in July.

The soaring cost of petrol, up almost 9 per cent in August, led households to fork out more at the bowser with spending at service stations increasing by 9.5 per cent.

Spending on insurance also increased by 13.5 per cent over the year, as higher premiums for home, motor vehicle and health insurance hit the hip pocket.

Mr Halmarick said Commonwealth Bank forecast that household spending would weaken further over the remainder of 2023 and into 2024.

“Monetary policy is now restrictive and financial conditions will continue to tighten in the months ahead on the lagged effect of RBA interest rate hikes and the fixed rate mortgage refinancing task,” he said.

Joanna Swanson

Joanna Swanson is Europe correspondent at the Thomson Reuters Foundation based in Brussels covering politics, culture, business, climate change, society, economies and inclusive tech. With specific focus in breaking news, she has covered some of the world's most significant stories.