The Commonwealth Bank recently published its latest Household Spending Insights (HIS) index, revealing spending fell in five of the 12 underlying categories included in the assessment.
CBA reported weaker spending in the month of September across recreation, utilities, health, household goods, and household services.
Annual spending growth fell from a peak of 18.7 per cent in August 2022 to just 1.8 per cent.
The latest retail sales data from the Australian Bureau of Statistics (ABS) also confirmed a sustained dip in consumer spending.
Retail sales grew 0.2 per cent in August, below market expectations of a 0.3 per cent rise and following a 0.5 per cent pick-up in July and a 0.8 per cent spike in June.
According to Paul Bloxham, HSBC chief economist, Australia, New Zealand and global commodities, the “consumer squeeze” would likely continue for the foreseeable future.
He reflected on the raft of disruptions which have undermined household confidence in recent years.
“For some time now, we have been describing the Australian consumer picture as complicated,” he said.
“Much of the complication is due to the disruptive impact of the pandemic and the policy response to it on spending patterns and saving behaviour.
“Additional disruptions have been driven by the unusual effects of multi-decade high inflation, the RBA’s rapid and substantial monetary tightening, and a closed and then reopened border, which stalled and then boosted the migrant intake and population growth.”
But going forward, household spending behaviour would be constrained by “sticky” inflation, the lag effects of an aggressive monetary policy tightening cycle from the Reserve Bank of Australia (RBA), and higher indirect taxes.
According to Mr Bloxham, these headwinds would return consumption levels to pre-COVID-19 norms.
“Spending on services has returned to close to its pre-pandemic trend in volumes, although it has slowed recently, at still a touch below the previous trend,” he observed.
“Spending on goods has fallen in volume terms, led by declining spending on household goods. However, spending at cafes and restaurants and on clothing is still well above pre-pandemic trends, while international travel is lower.
“…Higher interest rates are weighing on mortgage holder incomes and spending, and the effect is, unsurprisingly, larger at the lower end of income distribution. Households have cut back on discretionary spending, and a small but rising proportion of mortgage holders are unable to meet essential expenses and needing to draw down savings.”
He said continued tightness in the labour market, rising residential property prices, and accumulated excess savings have helped offset pressures on household balance sheets.
But ultimately, Mr Bloxham said he anticipates a “sustained period of below trend consumption growth”, as the economy makes slow progress towards the 2–3 per cent inflation target.
The RBA does not expect to achieve its 2–3 per cent inflation objective until 2025.