Consumer spending in entertainment, retail, and travel continues to fall as consecutive interest rate hikes flow through to households, according to the latest CommBank House Hold Spending Intentions (HSI) Index.
Despite large falls across discretionary categories, the broader CommBank HSI Index declined only 0.1 per cent per cent in original terms over February due to a seasonal rise in home buying and motor vehicles, after traditionally lower spending in January.
Entertainment spending fell by 11.3 per cent as Australians returned to work and school following the first "normal" summer break since Covid, with household budgets constrained by cost-of-living pressures and higher interest rates.
Retail spending also fell a further 9.8 per cent following a large decline in January. With inflation at 7.4 per cent over the past year, weakness is building in the retail space particularly in items such as household goods which continues to be impacted by falling home prices and lower turnover.
While travel spending fell 8.9 per cent in original terms, it recorded a slight increase when seasonally adjusted, suggesting there is still pent-up demand for travel.
Commonwealth Bank of Australia Senior Economist Belinda Allen said February's CommBank HSI Index showed a further brake on discretionary spending, but that Australians were willing to make sacrifices to prioritise holiday spending.
"We are seeing the growing impact of higher interest rates, with consumers taking stock and prioritising what they are spending their money on. Despite this, there is still demand for travel which indicates Australians are willing to sacrifice spending on other discretionary categories to enjoy a well-earned holiday following the pandemic.
"Recent RBA commentary suggests it is close to pausing the hiking cycle and interest rates are now restrictive. We expect a continued slowdown in consumer spending over coming months, with the large volume of fixed rate mortgages expiring this year adding pressure on household budgets from higher mortgage payments," Ms Allen said.
Large falls in discretionary categories was offset by an increase of 21 per cent in home buying, which remains 20 per cent lower than a year ago. The rebound in February was driven by a normal seasonal increase in home loan applications and Google searches for property inspections and appraisals following the Christmas break.
CBA's economics team forecasts one further 25bp interest rate increase by the Reserve Bank of Australia in April 2023 to a peak cash rate of 3.85 per cent, prior to an expected 50bp of rate cuts in Q4 23 and a further 50bp of easing in H1 24.
The CommBank HSI Index combines analysis of CBA payments data (Australia's largest consumer spending data set covering approximately 40 per cent of payment transactions), loan application information and Google Trends publicly available search activity data. To access this powerful insight into spending trends, visit: commbank.com.au/hsi
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