Softness in spending likely to continue into 2024: CBA

The Commonwealth Bank of Australia’s (CBA) Household Spending Insights (HSI) index for August 2023 rose by 0.7 per cent per month in seasonally adjusted terms to 137. However, the annual growth for the HSI index has shown signs of slowing, up by 2.3 per cent per year as of August.

According to the major bank, the effects of the Reserve Bank of Australia (RBA) increasing interest rates by 400 basis points (bps) is reflected in this slowdown in household spending, with the annual rate of growth being 8.3 per cent in May 2022 (the month the rate hikes began) and peaking at 18.7 per cent in August 2022.

CBA chief economist Stephen Halmarick said that despite the increase, the growth in the HSI “remained subdued” as households continued to manage rising cost-of-living pressures.

He added that monetary policy is now restrictive, with financial conditions expected to tighten in the months ahead due to the lagged effect of the rate hikes and “the fixed rate mortgage refinancing task”.

“We continue to expect household spending to weaken further over the remainder of 2023 and into 2024,” Mr Halmarick said.

Mr Halmarick added that with the RBA having held the cash rate steady since June, the major bank’s view is that the hiking cycle has come to an end and the next movements in the cash rate are expected to be rate cuts starting in March 2024, or possibly pushed back to May.

AMP Bank chief economist Shane Oliver shared a similar sentiment in an insights piece released on 13 September.

“We were way too optimistic as to how far the RBA would raise the cash rate, but our view remains that the RBA has done more than enough to bring inflation back to target, and so we are likely at the peak,” Mr Oliver said.

Mr Oliver added that the bank is allowing for “four rate cuts through 2024 as the economy and inflation slow further”.

The rise in the monthly HSI was led by increased education spending by international university students, higher transport spending as a result of rising petrol prices and the FIFA Women’s World Cup driving up recreation spending and activity.

The surge in international students saw education spending rise by 2.8 per cent in August, accelerating the annual rate of spending to 14.7 per cent, up from 9 per cent in July.

Spending on recreation rose by 1.9 per cent in August and 8.4 per cent annually, primarily driven by the World Cup and “big-name concert tours”, which resulted in ticketing agency spending rising by 70 per cent in the month.

Travel bookings, commercial airlines, cruise lines and accommodation also drove up spending in this category for the month.

[RELATED: Rate cuts could come by March 2024, say AMP, CBA]