Australia household spending surges, boosting RBA hike bets

[SYDNEY] Australia’s household spending handily surpassed expectations in October to post its biggest increase since January 2024, boosting the case for an interest-rate hike next year.

Spending advanced 1.3 per cent from September to exceed economists’ expectations for a 0.6 per cent gain, Australian Bureau of Statistics (ABS) data showed on Thursday (Dec 4). From a year earlier, consumption climbed 5.6 per cent versus estimates for a 4.6 per cent increase.

Yields on three-year government bonds jumped above 4 per cent for the first time since January, climbing as much as 6 basis points, while the currency gained. Money market traders boosted bets for a rate hike next year, with the odds for a May move climbing to 55 per cent, from 18 per cent seen on Wednesday.

“Discretionary spending surged this month, led by goods as promotional events saw households spend more on clothing, footwear, furnishings and electronics following months of weaker spending in these categories,” said Tom Lay, head of business statistics at the ABS.

“Services spending also rose in October, as major concerts and cultural festivals drove up demand for catering, hospitality and hotel stays in major cities.”

While the Reserve Bank of Australia (RBA) cut rates three times since February to 3.6 per cent, it’s expected to keep borrowing costs unchanged at next week’s meeting amid signs that inflation pressures may be rebuilding. Money markets are wagering the RBA’s next move will be a hike in 2026.

Gross domestic product data released on Wednesday showed Australia’s household savings ratio climbed to 6.4 per cent from 6 per cent three months earlier, underpinned by higher incomes.

RBA governor Michele Bullock said on Wednesday that the board is closely watching inflation to see whether recent pressures are transitory or more persistent and will act if necessary, in a signal that further policy easing is unlikely.

Household spending accounts for more than half of Australia’s economic output and, as a result, is closely watched by policymakers.

SEE ALSO

Australia economic growth disappoints, easing rate-hike bets

Australia rolls out AI roadmap, steps back from tougher rules

Australia’s GDP set to hit three-year high as rate hikes debated

Thursday’s data also showed:

• All nine spending categories rose, driven by clothing and footwear which jumped 3.5 per cent.
• Furnishings and household equipment climbed 3 per cent and hotels, cafes and restaurants 2.2 per cent.
• Services spending was 6.4 per cent higher than in October 2024, while goods spending was up 4.9 per cent compared with last year. BLOOMBERG