Economists at Commonwealth Bank believe the Australian economy is running above its speed limit, raising concern over a possible rate hike in February.
This follows the release of new spending data by the bank, showing that Australians opened their wallets in the lead-up to Christmas, splashing out on butchers, liquor stores and dining out as festive entertaining took centre stage.
According to the latest CommBank Household Spending Insights (HSI), food and beverage spending recorded its strongest monthly rise since April, up 1 per cent, while hospitality lifted 0.7 per cent for the second consecutive month.
Household goods, which includes fashion products, homewares and the like, also lifted by 0.7 per cent.
The HSI index overall rose 0.7 per cent in December, marking 15 months of consecutive gains. Annual growth sits at 6.3 per cent, suggesting real household consumption is tracking slightly above expectations.
“The strength in household spending late in the year was more robust than anticipated and points to a willingness to spend that exceeds our earlier forecasts,” CommBank head of Australian economics, Belinda Allen, said.
“This momentum adds to concerns the economy may be running above its speed limit, supporting our expectation for a February rate hike.”
Utilities saw the sharpest increase in spending in December, up 6.4 per cent as government energy rebates expired, boosting annual growth in utilities spending to 15 per cent.
Communications and digital spending rose 0.7 per cent, while transport costs rose 0.5 per cent, fuelled by higher petrol prices and increased ride-sharing activity.
Recreation eased to 0.2 per cent growth in the month after a bumper November driven by major sporting and concert events.
Across the states, Western Australia was in the lead up 0.9 per cent, followed by Queensland at 0.7 per cent. New South Wales and Victoria recorded softer growth of just 0.1 per cent. Over the year, WA and Queensland were standout, with annual growth above 8 per cent.
CommBank noted that the Reserve Bank of Australia will closely study household spending data and the upcoming December quarter CPI release on 28 January. Analysts say strong spending is contributing to inflation and could reinforce the case for tighter policy as inflation risks persist.
“The Australian economy is at or above its speed limit and the RBA will be weighing up whether this momentum risks pushing inflation higher,” Allen said.
“The upcoming CPI print will be critical in determining the timing of any rate hike.”