Accelerating household spending gives RBA ‘reasons to be concerned’
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More news: Accelerating household spending puts additional pressure on the Reserve Bank of Australia to hike interest rates if it wants to get inflation back within its target band “within a reasonable period of time”, according to EY senior economist Paula Gadsby.
Data released by the Australian Bureau of Statistics on Monday indicated that household spending had hit a 6.3% year on year increase. This was above market expectations for a 5.5% lift and is the fastest 12-month gain since mid-2023.
“Reserve Bank Deputy Governor Andrew Hauser noted in an interview last week that household balance sheets remain strong for many, supported by rising house prices,” Gadsby said.
“This, along with the still relatively tight labour market, and an annual inflation rate of 3.4 per cent in November, give the Reserve Bank reasons to be concerned about getting the Consumer Price Index (CPI) back to the middle of the 2-3% target band within a reasonable period of time.”
Commonwealth Bank economist Ashwin Clarke said the latest data “suggests household willingness to spend is stronger than we thought, and unless spending declines precipitously in December, we will get strong household consumption growth over the December quarter”.
“Strong spending will add to concerns in the RBA about the economy breaching its speed limit and on the margin supports our expectation for a rate hike in February.”
ANZ economists Aaron Luk, Madeline Dunk and Adam Boyton noted that while household spending “remained strong into the final months of 2025 the housing market appears to be slowing”.
“While the recent signs of cooling in the housing market might suggest to the RBA Monetary Policy Board that policy is slightly restrictive, the strength in consumer spending points to a robustness in demand and a genuine pick-up in private sector activity over 2025,” the ANZ economists said.
UBS economist George Tharenou said the bank still expects the most likely timing for a 25 basis point hike is May 2026.
However, he noted the “consumer has clearly surprised to the upside in recent months”, alongside “mostly solid economic data” since the RBA’s last meeting in December, underscoring the risk of an earlier hike as soon as its next meeting in February.
Monthly household spending indicator lifts 1% in November
The news: Household spending in Australia lifted by 1% month on month in November as both goods and services spend increased, according to the latest seasonally adjusted figures released by the Australian Bureau of Statistics.
The numbers: The latest rise in household spending was ahead of consensus expectations for a 0.6% increase in November and spending is now 6.3% higher than 12 months ago.
The increase follows a 1.4% increase in October and a 0.4% increase in September. Services spending was 7.8% higher than in November 2024 while goods spending was up 4.9%.
Household spending increased in all states and territories. Tasmania (+2.1%) and Western Australia (+1.7%) showed the biggest month on month gains.
The context: ABS head of business statistics Tom Lay said “household spending remained strong in November” as a "strong rises" in spending on goods and services continued from October.
Lay noted that a 1.2% month-on-month lift in services spending was driven by major events including concerts and sporting fixtures, which were linked with higher spend on catering, transport and recreation and cultural activities.
Goods spending grew by 0.9% driven by Black Friday sales, particularly for clothing, footwear, furnishings and electronics, Lay also noted.
Household spending on alcoholic beverages and tobacco (-1.8%) was the only category to show a decline month to month.
Inflation is currently above the Reserve Bank of Australia's target band, with some economists arguing the central bank needs to hike interest rates following the monetary policy board's next meeting in February.
The sources: ABS media release, ABS data
