Mortgage holders are feeling upbeat – even without a fresh rate cut.
In fact, consumer spending is picking up pace, according to new insights from Commonwealth Bank (CBA), though not quite as quickly as previously hoped.
The "CommBank Household Spending Insights (HSI) Index" revealed that consumer spending was up 0.3% in June. That's on top of gains in April and May.
“Household spending is starting to show signs of consistency month-on-month and should continue to pick up this year as consumers begin to loosen their purse strings," said CBA senior economist Belinda Allen. “The RBA’s decision to hold rates at 3.85% in July was unexpected, but we anticipate the RBA to cut the cash rate in August by 25 basis points, with November the most likely option for a follow up rate cut.
"While we still anticipate a pickup in household spending in 2025, a slower rate cutting cycle could soften this recovery over the remainder of the year," Allen said.
For the 12 months leading up to June, homeowners with a mortgage increased spending by 5.2%, while renters spent 4.2% more. Interestingly, homeowners without a mortgage spent the least: an increase of just 3.5%, year over year.
The data suggests that those with mortgages are starting to feel more financially secure. And with the possibility of more rate cuts coming, confidence could continue to tick upwards.
“Homeowners with a mortgage have reduced spending on transport, hospitality and food and beverage goods over the past year, but lower interest rates are expected to boost disposable income in the coming months," Allen said.
By state, New South Wales had the highest spending growth in June, up 0.7%, or 8.4% for the year.
Allen said the RBA is likely waiting to see the quarterly consumer price indices (CPI) – the next one set to be released 30 July – before making any further rate decision.
"It does seem like the RBA is acting cautiously and will want to see their quarterly inflation numbers for cutting interest rates, so August and November makes the most sense," Allen told Australian Broker.
On Tuesday, the Reserve Bank of Australia (RBA) caught markets off guard when it decided to hold the current official cash rate (OCR) at 3.85%. The market – including all four of Australia's Big Four Banks – were expecting the nation's central bank to chop off 25 basis points.
But Tuesday's rate cut disappointment followed two rate cuts earlier this year – one in February and one in May – both of which had helped lift both confidence and spending.
At the same time, inflation hit a three-year low earlier this year, while employment levels remain steady, all pointing toward the potential for further rate cuts in 2025.
"What the governor [Michele Bullock] made clear yesterday was that it was a timing issue, not a direction issue, and that interest rates in Australia will continue to move lower," Allen said.
