Spending growth has declined nationally to just 1.3% in the year to July and is weakest in Victoria, according to a new report by Commonwealth Bank of Australia (CBA).
The monthly CommBank Household Spending Insights (HSI) Index for July was unchanged at 135.2, noting the 1.3% growth is down from a peak of 18.2% in August 2022.
The HSI index uses de-identified payments data from approximately seven million CBA customers - comprising roughly 30% of all Australian consumer transactions. It is based on 12 spending categories, with a breakdown provided between goods and services, retail and non-retail, as well as essential and discretionary spending. Spending activity for each Australian State is also tracked.
CBA chief economist Stephen Halmarick said there were spending gains in July for household goods - which includes clothing and accessories - transport, hospitality, education, insurance, health, and communications and digital, which were offset by declines in household services, recreation, utilities, motor vehicles and food and beverage goods spending.
The strongest state for household spending growth in July was South Australia, up 1.9%, followed by Victoria and NSW which were both on 1.7%, while the Northern Territory and Queensland were flat at 0.1% and 0% respectively.
However, over the past 12 months, Western Australia (+3.5 per cent), South Australia and Northern Territory (both +3.4 per cent) saw the strongest household spending growth, while NSW (-0.2 per cent) and Victoria (-0.3 per cent) were the weakest.
“The effects of 400bp of RBA interest rate increases is clearly reflected in a significant overall slowdown in household spending as measured by the CommBank HSI Index,” Halmarick said. “Monetary policy is now restrictive and financial conditions will continue to tighten in the months ahead on the lagged effect of RBA interest rate increases and the fixed rate mortgage refinancing task.
“We continue to expect household spending to weaken further over the remainder of 2023 and 2024.
“While the RBA is likely to hold the cash rate at 4.1% for an extended period, we expect it will start lowering interest rates in March next year to 3.1% by the end of 2024 - in response to a slowing economy, inflation closer to target and a softer labour market.”
CBA group executive of institutional banking and markets Andrew Hinchliff said consumer spending is the largest component of the Australian economy.
“This is why businesses, governments and major policy-setting institutions like the RBA closely follow measures of consumer spending,” Hinchcliff said. “The CommBank HSI Index provides a unique and current read on consumer spending behaviour and how macro developments like changing RBA interest rates are playing out in the real economy.”
The CommBank HSI Index uses all CBA credit and debit card transactions (including ATM, BPAY and direct debit payments) to show national and State based Australian consumer spending each month.