Interest rate rises yet to affect household spending, rising 29.0% in August

The Monthly Household Spending Indicator revealed household spending continued to rise in August 2022, increasing by 29.0% compared to the same time last year.

Jacqui Vitas, head of macroeconomic statistics at the ABS, said August 2022 saw the 18th consecutive month of increases through the year in total household spending, with increases in all spending categories.

"There were strong increases following COVID-19 Delta lockdowns that reduced spending last year," Ms Vitas said.

"The strongest increases were seen in clothing and footwear, up 75.8%; hotels, cafes and restaurants, up 64.8%; and transport, up 57.8%."

How does spending compare to pre-pandemic times?

The ABS estimates that total household spending in August 2019 was 15.8% higher in current prices, with the strongest increases over this period being recreation and culture (up 31.1%), clothing and footwear (up 26.3%) and furnishings and household equipment (up 20.1%).

Household spending in August 2022 rose across all states and territories, compared to the same time last year.

Spending categories such as food (up 2.4%) and alcoholic beverages and tobacco (up 0.2%) only saw small increases as they weren't categories impacted by lockdowns.

The highest increases in spending throughout the year were recorded across the Australian Capital Territory (up 46.7%), New South Wales (up 42.3%), and Victoria (up 33.5%); all three states were experiencing lockdowns this time last year due to the Delta wave.

All states showed an increase in household spending compared to pre-pandemic August 2019 estimates, with Queensland showing the strongest rise (up 21.5%), followed by South Australia (up 19.6%) and the Australian Capital Territory (up 18.2%).

September could be the tipping point: CBA

New data released by Commonwealth Bank revealed a decline in spending throughout September, as the RBA's interest rate hikes begin to have an impact on families.

The CommBank Household Spending Intentions (HSI) Index fell 0.5% in September, down to 114.9 from 115.5 in August.

This has been the first monthly decline in the HSI since the RBA began increasing interest rates in May this year.

The HSI index combines Commonwealth Bank of Australia (CBA) payments data and Google Trends search information.

CBA economists expect to see a more significant impact on the HSI index in the following months.

Health and fitness, home buying, household services and transport were the categories that saw the largest declines throughout September.

The health and fitness category declined by a sharp 11.2% in September, a significant contrast to the 14% gain in the month prior.

Spending on motor vehicles rose 3.3%, moving into positive territory for the first time in five months.

CommBank Chief Economist Stephen Halmarick said the effect of rising interest rates is beginning to impact on household budgets and Australian consumer spending is adjusting accordingly.

"Households are seeing a noticeable difference to their mortgage repayments and therefore are considering how they can adjust their expenses elsewhere," Mr Halmarick said.

"The gains in the Motor vehicle index provides some relief for the industry, as global supply chain issues begin to resolve.

"The improvement follows the strength seen in August, with additional deliveries of vehicles coming into Australia.

"Meanwhile, transport spending has reduced, yet we can expect an increase in the coming months as petrol prices rise as the governments excise levy returns to its full amount."

CBA's Economics team correctly predicted the latest 25 basis point interest rate increase, forecasting a further 25 basis point rise at the RBA's November Board meeting.

Australians lean towards debit over credit

New data by the ABS also shows debit card spending continues to outpace credit card spending, after taking the preference lead in May 2019 - before the effects of the pandemic began to widen the gap further.

In Australia, debit card spending as of August 2022 currently sits at $44.46 billion, whereas credit card spending sits at $31.69 billion.

The number of active credits accounts also continues to decline, while debit cards on issue is steadily rising.

According to the ABS's August figures, Australians' credit card balances currently sit at $32.83 billion, with the value accruing interest rising slightly to $17.64 billion.

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