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Household spending rises but discretionary spending softens

By Charbel Kadib
2 minute read

The latest spending data has provided new evidence of weakness in the economy ahead of the Reserve Bank’s next rate move.

Household spending increased 4.9 per cent in the 12 months to 30 September 2023, according to the latest data from the Australian Bureau of Statistics (ABS).

The rise was underpinned by a spike in services spending, which increased 9.6 per cent, driven by an 18.4 per cent increase in transport spending.

According to Robert Ewing, ABS head of business statistics, the increase in transport spending contributed to a 9.2 per cent rise in spending on non-discretionary goods and services.

In contrast, spending on discretionary items rose just 0.3 per cent over the same period.

Weaker discretionary spending and a broader 0.1 per cent decline in overall spending on goods provides further evidence of weakening aggregate economic activity.

The release of the household spending data coincided with a revision to the latest retail trade figures, which also pointed to a decline in volumes.

Retail trade volumes are down 1.7 per cent year-on-year and 4 per cent on a per capita basis.

This latest tranche of data comes ahead of the Reserve Bank of Australia’s next monetary policy board meeting on 7 November.

Markets are pricing in another 25 bps hike, taking the cash rate to 4.35 per cent.

Since commencing rate hikes in May 2022, the RBA has lifted the cash rate by a cumulative 400 bps in an effort to return inflation to the 23 per cent target range.

Annualised inflation currently sits at 5.2 per cent but is well below its peak of 7.8 per cent in December 2022.

The rate of disinflation is expected to accelerate throughout 2024, as the full impact of previous rate hikes filter through to the economy.

The RBA is set to release new forecasts in its next statement on monetary policy but according to ANZ Research, the central bank’s previous forecasts may still be achievable.

“We expect that the higher CPI pushed up the RBA’s near-term inflation forecasts, but that inflation will still return to target by second half of 2025,” the research group noted.

Attempts to return inflation to target are tipped to result in material weakness in the Australian economy and as a result, prompt the RBA to reverse its monetary policy strategy sometime in 2024.

The Commonwealth Bank is projecting up to 100 bps in easing over the second half of 2024.