Household spending drops in December

The monthly CommBank Household Spending Insights (HSI) Index fell 3.9% in December.

This, says the bank, was due to the cumulative effect of successive interest rate rises as well as consumers bringing forward holiday spending.

Spending fell in eight of the CommBank HSI Index’s 12 underlying categories, with the biggest fall seen in household goods (down 16%) including furniture and household appliances.

December also saw declines in recreation (down 6.5%), food and beverage (down 2.7%) and hospitality (down 0.8%). These falls were partly offset by increased spending on transport (up 1%), insurance (up 0.6%) and health (up 0.2%).

Commonwealth Bank of Australia (CBA) Senior Economist Belinda Allen says the fall in December more than offset the gain of 1.6% in November and continued the pattern of recent years where strong consumer spending in November is followed by weak results for December.

“Household budgets are undoubtedly constrained with rate rises leading to a weakening of consumer spending,” she says.

“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 is forecasting the RBA will lower the cash rate by 75bp in the second half of 2024, starting in September, and a further 75bp in first half of 2025.