The Commonwealth Bank Household Spending Insights (HSI) Index for December showed a significant decline in household spending, falling 3.9% from November.
The drop in spending was observed in eight out of twelve categories in the HSI Index, with household goods, including furniture and household appliances, experiencing the largest fall of 16%.
Other notable declines included recreation (-6.5%), food and beverage (-2.7%), and hospitality (-0.8%). However, there were slight increases in spending on transport (+1.0%), insurance (+0.6%), and health (+0.2%).
CBA senior economist Belinda Allen said the decrease in December spending more than reversed the 1.6% gain seen in November 2023. She pointed out that there has been a consistent pattern over recent years (where robust consumer spending in November is followed by weaker results in December).
She highlighted that household budgets are under pressure due to rising interest rates, leading to a downturn in consumer spending.
“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,” she said.
Inflation, however, is also showing signs of further moderation, with the trend supporting the bank’s belief that the Reserve Bank of Australia’s (RBA) cycle of monetary policy tightening might be ending.
Consequently, the CBA forecasts that the Reserve Bank of Australia will lower the cash rate by 75 basis points in the second half of 2024, followed by an additional 75 basis points reduction in the first half of 2025.
“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.”
