There are some early signs the combination of soaring inflation and higher interest rates is starting to crimp the spending plans of Australians, putting the Reserve Bank on notice about its plans to tighten monetary policy further.
Data compiled by the Commonwealth Bank, released on Tuesday, showed a drop through August in expenditure plans in the discretionary part of the economy including travel, entertainment and retail.
A measure of spending intentions from the Commonwealth Bank suggests early signs high inflation and increasing interest rates are starting to affect consumers.Credit:Luis Ascui
The bank’s household spending intentions index, which is compiled from the CBA’s own payments data, loan application information and Google Trends, increased by 0.8 per cent in August.
But Commonwealth Bank chief economist said the small lift in August highlighted the overall momentum in the economy plus the impact of inflationary pressures.
He said there were clear signs coming through that consumers were starting to change their spending plans.
“While the index rose in August, we’re seeing weakness in discretionary spending following recent interest rate increases and a growing move to value purchasing. For instance, while grocery spending remains high, we’re hearing customers are swapping to value products in response to higher food prices” he said.
“Spending for household services has also risen 4 per cent in August, with charitable donations leading the category, likely signalling a stressful environment for many in the community.”
Through August, there was a 13.3 per cent lift in spending intentions on motor vehicles, which the bank said suggested there had been an easing in international supply chain constraints. Data from the Federal Chamber of Automotive Industries last week showed a lift through August.
There was also a 7.2 per cent increase in health and fitness, with most of this due to higher planned expenditure on medical services, doctors and hospitals.
But in other areas, there were falls in spending intentions.
Travel dropped by 3.9 per cent last month, while entertainment spending dropped by 7.2 per cent, which the bank said might be partly attributable to the end of the run of the Top Gun sequel in cinemas.
CBA said there had been a rise in home loan applications in August, picking up refinancing activity, but they were well below levels a year ago.
Retail spending intentions dropped by 1.3 per cent. The fall was largely due to a slip in expenditure on discretionary items, including men’s and women’s clothing, shoes, sports and riding apparel and through home supply stores.
There had been a lift in plans to spend on groceries, electronics, nurseries and garden supplies.
The report covers August, during which the Reserve Bank lifted official interest rates by half a percentage point. It followed that last week with another 0.5 percentage point increase, taking the official cash rate to a seven-year high of 2.35 per cent.
Despite the increase, the ANZ-Roy Morgan weekly measure of consumer confidence – released on Tuesday – showed only a small dip in shopper sentiment.
Confidence fell by 0.5 per cent over the past week, the smallest drop after a half percentage point rate increase this year.
The ANZ’s head of Australian economics, David Plank, after the June, July and August increases in rates, there had been on average a 5 per cent drop in weekly consumer confidence.
“It is possible that [Reserve Bank governor Philip] Lowe’s suggestion that the size of future rate increases might be smaller helped support confidence somewhat,” he said.
“Lower petrol prices may also be helping sentiment, with household inflation expectations dropping 0.1 percentage point to 5.3 per cent.
“We wouldn’t read too much into the relative stability of sentiment, as the overall story remains the same – consumers are very pessimistic.”
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