SYDNEY: Household spending declined in February, the nation’s largest lender says, as the Reserve Bank of Australia’s (RBA) interest rate increase late last year weighed further on consumer activity.
The Household Spending Insights (HSI) index fell 0.3% to 141.6 points, led by declines in household goods and transport, Commonwealth Bank of Australia (CBA) said yesterday.
Spending gained on utilities, health and hospitality, the latter led by a 76% jump in music festivals, but wasn’t sufficient to counter the falls.
“February was a big month for concerts and big social events in Australia and consumers clearly prioritised tickets to see their favourite artists like Taylor Swift,” CBA chief economist Stephen Halmarick said.
“But that wasn’t enough to offset weakness across seven of the 12 categories of the index, which paints a picture of consumers cutting back.”
While Australia’s economy is growing, amid population gains, a per capita recession is deepening as higher borrowing costs and rising living expenses drag on spending.
The RBA has raised rates 13 times in the current cycle and the last hike in November took the benchmark to a 12-year high of 4.35%.
The HSI index’s current reading is below November’s level, showing a weakening over the summer months as the last rate rise makes its way through the economy.
The central bank meets on Tuesday to decide on policy and given consumer spending makes up around 50% of gross domestic product (GDP), it’s crucial to understanding how the economy is performing.
RBA assistant governor Sarah Hunter said this week that households are “clearly struggling” as inflation and mortgage repayments squeeze budgets.
Economic data for the final quarter of 2023, released this month, showed in per person terms, GDP fell 0.3% from the third quarter and was 1% lower than a year earlier, the deepest downturn outside the pandemic since 1991, according to Bloomberg Economics.
The CBA said softened consumer outlook combined with slowing inflation will prompt the RBA to begin cutting rates in September. — Bloomberg
