Gloomy outlook for Australian household spending after RBA rate hike

Household spending unexpectedly fell in December, with the outlook for the year ahead gloomy after the Reserve Bank of Australia hiked interest rates last week.

The 0.4 per cent fall in household spending underwhelmed expectations for a 0.1 per cent rise from economists and marked the first dip since March 2024.

It followed increases in October and November, according to the Australian Bureau of Statistics on Monday.

ABS head of business statistics Tom Lay said households brought forward their purchases during major sales events in October and November, which included Black Friday and Cyber Monday.

“These falls were across a range of categories including discretionary items such as electronics, clothing and furniture, as well as essential items like healthcare,” Mr Lay said.

But the ABS said household spending over the year remains high, up 5 per cent compared with December 2024.

Monday’s data came just days after RBA governor Michele Bullock confirmed government spending contributed to a resurgence in inflation that forced the central bank to hike the official cash rate to 3.85 per cent, marking the first monetary policy tightening in more than two years.

Mortgage-holders have also been warned to brace for another rate rise as soon as May, but Monday’s weaker-than-expected spending data may deter the RBA from delivering back-to-back hikes.

“Consumer confidence has remained subdued through 2026 to date, and the RBA’s decision last week to lift the cash rate to 3.85 per cent will likely weigh further on sentiment,” ANZ economists Aaron Luk and Adam Boyton said on Monday.

AMP economist My Bui said looking forward, the momentum of household spending growth would falter.

“The pace of growth already looks to be slightly stabilising in recent months and the rate hike will no doubt put downward pressure on consumer sentiment as well as purchase intentions among households,” she said.

The household spending indicator is an important consideration for the RBA because private consumption accounts for more than half of GDP.

Household demand has been one of the factors the RBA has highlighted as stronger-than-expected in its latest communications.

The central bank expects household consumption to increase by about 0.6 per cent over the quarter, or 3.1 per cent over the year.

The biggest declines in household spending for December were clothing and footwear, furnishings and household equipment, as well as health.

Mr Lay said health spending fell after several months of growth, partly due to higher bulk-billing rates reducing out-of-pocket costs for households.

Oxford Economics Australia lead economist Ben Udy said while the rate hike would weigh on spending growth in 2026, he expects inflation to cool over the course of the year, which should prevent consumers from turning too sour.

The RBA expects headline inflation to climb even higher to 4.2 per cent by June, up from an annual pace of 3.8 per cent in 2025, and remain above its 2 to 3 per cent target until at least mid-2027.