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January, 2024

Rising interest rates and early holiday spending lead to sharp drop in CommBank Household Spending Insights Index

The CommBank Household Spending Insights (HSI) Index experienced a sharp 3.9 per cent decline to 137 in December 2023, as rising interest rates and consumers’ early holiday spending habits took a toll on consumer spending conditions.

Spending fell in eight of the CommBank HSI Index’s 12 underlying categories, with the most significant decline seen in household goods, which plummeted by 16 per cent. Other categories that witnessed a decrease include recreation (down 6.5 per cent), food and beverage (down 2.7 per cent), and hospitality (down 0.8 per cent).

However, not all categories were hit by the downturn. Some sectors saw an increase in spending, including transport (up 1.0 per cent), insurance (up 0.6 per cent), and health (up 0.2 per cent).

The drop in the index, which is based on de-identified payments data from approximately 7 million CBA customers, representing roughly 30 per cent of all Australian consumer transactions, indicates a shift in consumer spending patterns.

CBA Senior Economist Belinda Allen attributed the drop in the index to the impact of successive interest rate rises on household budgets.

“Household budgets are undoubtedly constrained with rate rises leading to a weakening of consumer spending,” Allen stated. She also noted households in all states reduced spending in December, with Victoria, South Australia, and New South Wales leading the decline.

“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.”

Looking ahead, CBA is forecasting the Reserve Bank of Australia (RBA) will lower the cash rate by 75 basis points in the second half of 2024, starting in September, and a further 75 basis points in the first half of 2025. This move could potentially ease the pressure on household budgets and stimulate consumer spending.

“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,” Allen said.

The CommBank HSI Index tracks month-on-month data and aims to provide insights into consumer spending habits and trends, providing a snapshot of the health of the Australian economy.