The Australian economy is gaining momentum and consumer spending is following suit.
Commonwealth Bank’s (CBA) August Household Spending Insights (HSI) Index released Thursday revealed that household spending has risen for six consecutive months, cementing a strong upward streak.
The Index rose 0.3% in August, month-over-month. That's on top of a 0.7% gain in July and consecutive 0.5% gains in the two months before that. On an annual basis, consumer spending is up 5% year-over-year.
Utilities were the top-performing category in August, up 2.9%, partially driven by timing on energy rebates, while spending on insurance and household goods declined, down -0.1% and -0.3%, respectively.
"We've now seen six months of solid growth, reinforcing our view that a consumer recovery is underway after a series of false starts last year and early into 2025," said Belinda Allen, head of Australian Economics at CBA. "The combination of growing incomes, a solid labour market and lower interest rates is helping improve household sentiment, as consumers are able to both spend and save again."
CBA's latest report comes following Reserve Bank of Australia (RBA) Governor Michele Bullock's recent comments that increased consumer spending could pump the brakes on future interest rate reductions if it fuels inflationary pressures.
"For some time we have been predicting that the Australian consumer will start to spend a bit more, and they are,” Bullock said during a speech on artificial intelligence in banking earlier this month in Perth. “That’s good, but it does mean that it’s possible that if it keeps going, then there may not be any interest rate declines yet to come."
Harry Ottley, an economist at CBA, noted that while "the economy is picking up a little bit more quickly than the RBA had expected," the bank likely wouldn’t have cut rates this month regardless.
"The bank is on a quarterly sort of cadence," he told Australian Broker. "So they probably weren't going to cut in September anyway. But November, we still think it's likely. But because of the strength of spending, we don't see anything after that. The labor market remains in a decent position and spending is picking up, so it's hard to see more cuts next year."
CBA has forecasted a 25-basis point reduction at the RBA's November meeting, while expecting the bank to hold steady at its meeting later this month.
Australia's central bank has slashed interest rates three times in 2025, most recently in August, bringing the official cash rate (OCR) down to 3.60%. Looking ahead, the RBA board reaffirmed its wait-and-see approach, pointing to global uncertainty and the need for sustained progress on inflation before making any future decisions on monetary policy.
But market players, including mortgage holders and investors, are optimistic for more rate reductions to come. Meanwhile, all four of Australia's Big Four banks have stated they expect further easing of monetary policy at some point in 2025 — though each major's predictions differ in timing and extent — thanks to the current low unemployment rates and moderating inflationary pressures.
In fact, the June quarterly consumer price index (CPI) confirmed that inflation continues to trend downward. Both headline CPI and trimmed mean inflation declined over the quarter, with annual CPI easing to 2.1%, down from 2.4% in the previous period, while trimmed mean inflation dipped to 2.7%, compared with 2.9% in the prior quarter. In addition, the nation's unemployment rate remains historically low at 4.2%.
That's good news for the property markets. Many mortgage holders are feeling the strain of cost-of-living pressures, while rising property prices and a housing shortage have made it increasingly difficult for both upgraders and aspiring buyers to get into, or move within, the market.
The RBA's next meeting is scheduled for 29 to 30 of September.
