Australia household consumption weakens, adding to rate-cut case

[SYDNEY] Australia’s household spending came in weaker than expected in August, adding to the case for the Reserve Bank of Australia (RBA) to resume policy easing as soon as next month.

Sales advanced 0.1 per cent from the prior month, when they climbed a downwardly revised 0.4 per cent, and missed expectations for a 0.3 per cent gain, Australian Bureau of Statistics (ABS) figures showed on Thursday (Oct 2). From a year earlier, spending climbed 5 per cent, compared with economists’ consensus for a 5.2 per cent increase.

“The small rise in August was the fourth increase in a row, and spending has risen in 10 of the last 12 months,” Lauren Binns, ABS head of business statistics, said.

RBA governor Michele Bullock this week pointed to a stronger-than-expected pick-up in household consumption driven by real income growth and a tight labour market. That’s one of the reasons economists expected the rate-setting board to show patience on policy after it left rates on hold on Tuesday at 3.6 per cent.

Increased disposable income and a wealth effect from rising property prices have underpinned household spending in recent months.

Economists expect the next cut in November, though money markets are fully pricing the next move by March.

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Australian households, among the most heavily indebted in the world, had struggled with high borrowing costs and elevated inflation in the post-pandemic period. They have been supported, however, by low unemployment which currently stands at 4.2 per cent.

Household spending accounts for about half of Australia’s economy and, as a result, is closely watched by policymakers.

Thursday’s report also showed:

• The largest falls in spending were for Recreation and culture and Alcoholic beverages and tobacco, both down 0.9 per cent.
• Services climbed 0.5 per cent, while goods spending slid 0.2 per cent.
• Households spent more on booking airline travel and accommodation services during August, the ABS said. BLOOMBERG