• Published on 15 August 2023
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CommBank Household Spending Index shows consumers continued to tighten belts in July

Commonwealth Bank of Australia (CBA) reported that Australian household spending declined to just 1.3% in the year to July and was weakest in Victoria.

Launched today, the monthly CommBank Household Spending Insights (HSI) Index uses de-identified payments data from approximately seven million CBA customers - comprising roughly 30% of all Australian consumer transactions – to reveal the latest trends in spending activity.

The CommBank HSI Index is based on 12 spending categories, with a breakdown provided between goods and services, retail and non-retail, as well as essential and discretionary spending. Spending activity for each Australian State is tracked and a separate Home Buying Index also measures home lending data.

Stephen Halmarick, chief economist of CBA, said that the new report built upon the capabilities of the previous Household Spending Intentions series, with CBA payments data now aligned to Australian Bureau of Statistics spending categories and census-weighting to be nationally representative, as well as being seasonally adjusted.

The latest findings of CommBank Household Spending Insights Index provide powerful insights into Australian consumer activity at a critical time for the country economically. It is a very comprehensive report and includes a number of statistical enhancements that build on our previous tracking of consumer spending.

“The CommBank HSI Index for July was unchanged at 135.2, but with the annual rate of spending growth dropping to only 1.3 % from a peak of 18.2 % in August 2022. Spending gains in July in household goods, transport, hospitality, education, insurance, health and communications and digital were offset by declines in household services, recreation, utilities, motor vehicles and food and beverage goods spending.”

The strongest state for household spending growth in July was South Australia (+1.9 %), followed by Victoria and NSW (both +1.7 %), while Northern Territory (+0.1 %) and Queensland (0.0 %) were flat. However, over the past 12 months Western Australia (+3.5 %), South Australia and Northern Territory (both +3.4 %) saw the strongest household spending growth, and NSW (-0.2 %) and Victoria (-0.3 %) the weakest.

“The effects of 400 bp of RBA interest rate increases is clearly reflected in a significant overall slowdown in household spending as measured by the CommBank HSI Index. Monetary policy is now restrictive and financial conditions will continue to tighten in the months ahead on the lagged effect of RBA interest rate increases and the fixed-rate mortgage refinancing task. We continue to expect household spending to weaken further over the remainder of 2023 and 2024.

“While the RBA is likely to hold the cash rate at 4.1 % for an extended period, we expect it will start lowering interest rates in March next year to 3.1 % by the end of 2024 - in response to a slowing economy, inflation closer to target and a softer labour market,” Halmarick commented.

David Watts, executive general manager of quants, data, analytics and technology (QDAT), CBA said the new report combines the recognised analytical strength of the bank’s global economic and markets research team with data provided by CommBank iQ, a joint venture with data science and artificial intelligence company Quantium.

“As Australia’s largest bank, our de-identified customer transaction data provides powerful insights into consumer spending trends. Released each month ahead of the official ABS quarterly reports on consumer spending, this new CommBank HSI Index gives our institutional and business clients advanced notice and analysis of developing spending trends and their potential impact,” said Watts.

Andrew Hinchliff, group executive of institutional banking and markets, CBA said the QDAT business was focused on providing the bank’s clients with leading data and analytics capabilities, and that the new monthly CommBank HSI Index will highlight how macro-economic trends are impacting Australian households and businesses.

“Consumer spending is the largest component of the Australian economy and central to understanding how it is performing, as well as planning for the future. This is why businesses, governments and major policy-setting institutions like the RBA closely follow measures of consumer spending. The CommBank HSI Index provides a unique and current read on consumer spending behaviour and how macro developments like changing RBA interest rates are playing out in the real economy,” Hinchliff said.

Re-disseminated by The Asian Banker