Household spending eases – could rates be next?

Newly released figures from the Australian Bureau of Statistics (ABS) show that household spending rose at a slower pace in October 2022. Combined with news that inflation may begin to ease, is this a sign that interest rates could soon pause their journey skywards?

The ABS Monthly Household Spending Indicator for October 2022 showed spending to be up 20.7 per cent compared to the same time last year. It was the 20th consecutive month of increased through-the-year total spending.

ABS head of macroeconomic statistics, Jacqui Vitas, said: 

“The through-the-year rise was more moderated than previous months, which coincides with less COVID-19 Delta lockdown impacts this time last year. Spending in Transport (up 42.3 per cent), Hotels, cafes and restaurants (up 39.9 per cent), and Clothing and footwear (up 32.2 per cent) all saw strong increases but have slowed in comparison to the previous two months.”

Similarly, the states and territories that saw some of the highest increases in October 2022 household spending (ACT, Victoria) were also the areas that experienced the strictest COVID-19 Delta lockdowns in October 2021. 

Signs inflation may also be easing

The moderating household spending figures follow hot on the heels of the ABS releasing its monthly Consumer Price Index (CPI) figures that indicate Australia’s inflation rate. These figures also moderated over the last month, rising 6.9 per cent compared to the last month’s 7.3 per cent.

If inflation continues to ease, this could indicate to the Reserve Bank of Australia (RBA) that the eight consecutive hikes to the national cash rate over 2022 are having their intended effect of slowing down spending. This could potentially encourage the RBA to pause raising the cash rate in 2023, and even prompt a consideration to cut the cash rate some time in 2024.

It’s important to note that while the month-on-month inflation figure has eased, it’s still high – over double the Reserve Bank of Australia’s (RBA’s) target band of between 2 and 3 per cent. Additionally, quarterly CPI figures won’t be released by the ABS until late January 2023. The RBA is still forecasting an inflation peak of 8 per cent over the year to the December 2022 quarter, before declining over the next couple of years until it reaches a little above 3 per cent over 2024.

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