Six months of spending growth but the RBA isn’t buying the hype

The Commonwealth Bank’s (CBA) Household Spending Insights (HSI) Index shows Australian households have been on a six-month spending streak.

In August, the index nudged up 0.3 per cent month-on-month, following a 0.7 cent lift in July and 0.5 per cent gains in May and June. Year-on-year, household spending is up a solid 5 per cent.

Belinda Allen, head of Australian Economics at CBA, said it’s a sign that the consumer recovery is finally getting some legs.

“We’ve now seen six months of solid growth, reinforcing our view that a consumer recovery is underway after a series of false starts last year and early into 2025. Growing incomes, a solid labour market and lower interest rates are helping improve household sentiment as consumers are able to both spend and save again.”

Where we’re spending

If you’re wondering where Ausies splashed their cash, it was a mixture of the practical and discretionary. Utilities led the charge in August, up 2.9 per cent, partly thanks to timing on energy bill rebates. Communications and Digital spending also surged (+1 per cent), reflecting Australians’ love of streaming, gaming, and online services. Recreation, Education and Household Services saw small lifts too.

Some areas eased back after big mid-year splurges: Insurance fell slightly (-0.1 per cent), Household Goods (-0.3 per cent) and Food & Beverage Goods (-0.1 per cent).

“Consumers are favouring experiences over stuff,” Allen noted, “and the wettest August in Sydney in 27 years probably nudged more people toward food delivery and online entertainment rather than cafes.”

Caution: Bumps ahead

Before anyone starts planning a spending spree, economists are waving a yellow flag. July’s HSI jumped 0.5 per cent, but that spike was boosted by a perfect storm of temporary factors: EOFY sales, a nasty flu season, and even the Lions Rugby Tour boosting spending in WA, QLD and VIC on dining and transport. Categories that had benefited from EOFY discounts, such as Furniture, Electricals, and Clothing, then dipped.

“As much as the numbers look good on paper, these temporary factors suggest the underlying pulse of spending isn’t quite as strong as the headlines imply,” Ivan Calhoun of CreditorWatch said.

August’s numbers, while still positive, will give a clearer picture.

Interest rates in the spotlight

The Reserve Bank of Australia (RBA) has been easing cash rates this year, with three cuts bringing the official rate down to 3.60 per cent. Recent GDP data showed the economy picking up faster than expected, largely thanks to stronger consumer spending.

CBA economist Harry Ottley told Australian Broker the bank probably wouldn’t cut rates in September but a 25-basis-point reduction in November is still likely. “Because of the strength of spending, we don’t see anything after that. The labour market remains in a decent position and spending is picking up, so it’s hard to see more cuts next year.”

RBA Governor Michele Bullock also warned that if household spending keeps surging, it could slow future interest rate reductions.

“That’s good, but it does mean that it’s possible that if it keeps going, then there may not be any interest rate declines yet to come,” she said.

The job market factor

Unemployment is the other key number to watch. If the unemployment rate hits 4.4 per cent or higher, the RBA could feel on the back foot and accelerate rate cuts. For now, though, the jobs market is solid, which gives more room to maneuver.

While small businesses are likely feeling cautiously optimistic about the rise in household spending, consumers hoping for a significant wave of interest rate cuts might still need to hold their horses.

The RBA’s next meeting is slated for  29–30 September.

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