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RBA Stall In Interest Hikes Doesn’t Help Consumer Spending Decline

Between the Reserve Bank of Australia (RBA) continuing to rise interest rates, the cost-of-living soaring, and salaries not keeping up, consumers are starting to forgo their usual cups of coffee, department store purchases, gym memberships, and limiting spending on bigger ticket items such as travel and luxury goods.

According to the latest Commonwealth Bank Household Spending Intentions index, customer buying activity over an array of categories like fitness, enter­tainment, home goods, and travel has declined by 1.7% in June.

Additionally, the CBA’s HSI index has released spending is down in entertainment by 5.4% in May and 15.4% for the year.

The travel industry is also experiencing a slowdown with May spending falling by 2.5% on categories such as hotels, campgrounds, and sports.

Home loan applications are also down which can most likely be attributed to not only the recent interest rate hikes but also economic uncertainty and inflation being rising above 6%.

“There is very clearly a slowdown in the rate of annual change (in household spending intentions), which we think is a direct flow on from the higher interest rates that the Reserve Bank has put in place,” CBA chief economist, Stephen Halmarick asserted.

He also warned that discretionary spending is also declining at a rapid pace.

“Real disposable income is declining, and people are having to spend more of their money on housing – whether they’ve got a mortgage or rent as both are rising. Hence there will be less money to spend on everything else, and you can see that in the slowdown in several measures of spending including the HSI.”

Despite the RBA stalling on increasing rates even higher this month, the long-term effects have yet to be fully felt by homeowners and Halmarick believes there is still “a lot of tightening still to come” with households attempting to change from variable to a fixed rate home loan rate.

“We are forecasting a final rate hike from the RBA in August, taking the cash rate to 4.35%. Given the lags involved with monetary policy, financial conditions are expected to continue to tighten for many households well into 2024,” Halmarick said.

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