Household spending dropped in April due to reduced trading days for Easter and ANZAC Day holidays, as annual spending growth continued to fall.
The CommBank Household Spending Intentions (HSI) Index declined 4.3% last month, while the lagged effect of the Reserve Bank’s recent interest rate hikes is tipped to further weaken consumer spending over the coming months.
The decline in the CommBank HSI Index was mainly due to reduced spending intentions in home buying, health and fitness, transport, and household services. Retail spending intentions also fell 1% after a strong 12.6% growth in March, although retail spending has tracked sideways in seasonally adjusted terms over recent months.
Spending intentions on motor vehicles climbed 5.3%, while a slight decline in purchases was offset by increased car loan applications, with electric vehicles now accounting for 8% of sales, up from 1.1% a year ago.
Spending in utilities continued to rise, up 7% on April last year, due to higher utilities bills. This was the fastest annual pace of growth in utilities spending since the HSI was introduced in 2018.
Stephen Halmarick (pictured above), CBA chief economist, said weaker spending in April reflected the surging cost of living, while the number of public holidays also impacted activity.
“Spending activity continues to moderate in response to the increased cost of living, with annual spending growth falling to 3.7% in April from a peak of 15.2% in August 2022 and well below the rate of inflation at 7%,” Halmarick said.
“With the RBA increasing interest rates again last week to 3.85%, monetary policy is now highly restrictive, and we expect the lagged effect of higher interest rates will further weaken household spending as the year progresses.
“However, we believe this latest increase will mark the peak in the cash rate, and that the RBA will commence interest rates cuts later this calendar year as inflation starts to trend downwards towards the Reserve Bank’s 2-3 per cent target range.”
CBA said it was expecting a significant cut in the budget deficit in the Federal Budget 2023-24 and measures to support more affordable housing.
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