The Reserve Bank of Australia (RBA) might be getting close to the end of its hiking cycle, but there are signs the economy has already slowed down.
According to the CommBank Household Spending Insights Index, consumption rose 0.7 per cent in August, however annual spending growth remains well down on the peak, prior to the start of the RBA’s rate hikes.
Queensland saw the strongest monthly spending growth during August (1.5 per cent), followed by Tasmania (1.3 per cent) and ACT (1.1 per cent), while annual spending growth remains strongest in Western Australia (4.7 per cent) and South Australia (4.5 per cent).
Spending growth is weakest in Victoria and flat year-on-year, with only a small rise in spending in August (0.4 per cent).
According to CBA, the surge in international students, higher petrol prices and the FIFA World Cup drove increased household spending in August.
Education spending increased 2.8 per cent in August thanks to record immigration, with the annual rate accelerating to 14.7 per cent and up from 9 per cent in July.
Recreation spending rose 1.9 per cent in August and to 8.4 per cent on an annual basis due to the FIFA tournament and a number of big-name concert tours.
While gains in motor vehicles, health and insurance spending were offset by weaker hospitality and utilities spending – reflecting the government rebates available for energy bills.
CBA Chief Economist Stephen Halmarick said that annual spending growth measured by the CommBank HSI Index remained significantly weaker than its peak of 18.7 per cent in August 2022 as households manage the increased cost of living.
“The effects of 400bp of Reserve Bank of Australia interest rate rises is clearly reflected in a significant slowdown in annual household spending growth measured by the CommBank HSI Index,” Mr Halmarick said.
“With the RBA holding rates since June, our view is that the hiking cycle is now at an end.”
Mr Halmarick said he feels there will be a further reduction in spending in the next 12 months.
“Monetary policy is now restrictive and financial conditions will continue to tighten in the months ahead on the lagged effect of RBA interest rate hikes and the fixed rate mortgage refinancing task,” he said.
“We continue to expect household spending to weaken further over the remainder of 2023 and into 2024.”
Meanwhile, the CommBank Home Buying index rose by 0.6 per cent in August in seasonally adjusted terms, to 98.7.
The increase in August followed a 2.1 per cent gain in July.
On an annual basis, the Home Buying index decelerated to -13.0 per cent in August, down from -9 per cent in July.
Mr Halmarick although there will still be a lagged effect from previous interest rate rises from the RBA, his view that interest rates have peaked in Australia will likely support home-buying activity in the months ahead, albeit constrained by a low level of available supply.
“We forecast dwelling prices will rise 7 per cent in 2023 and by a further 5 per cent in 2024,” he said.