Commonwealth Bank data shows interest rate rises drive down discretionary spending as households tighten belts

Belt-tightening brought on by three interest rate hikes in as many months is starting to filter through to consumer spending, with new figures showing a decline in discretionary purchases. The latest data from a breakdown of spending by Commonwealth Bank customers and Google Trends search information, released on Tuesday, revealed spending declined on entertainment (down 3.8 per cent), home buying (3.6 per cent) and retail (0.3 per cent) last month as increases in the official cash rate by the Reserve Bank of Australia since May begin to squeeze household budgets. The decline in those sectors was offset by increases in other areas, such as transport, lifting the bank’s household spending intentions index by a modest 0.9 per cent in June to 117.3 — equal to the record high set in March. The bank said the rise was mainly driven by the increased cost of goods and higher spending in the transport, education and household services sectors. “Australians returning to the office saw transport spending surge 6.7 per cent in June, due to the higher cost of fuels and an increased use of public transport, car parks, taxis and childcare services,” it said. “Elevated demand for work clothing also drove increased spending on department stores, dry cleaning and tailoring. While transport spending is up 132.2 per cent on June 2021, it remains well below the pre-pandemic levels.” Despite the downturn in discretionary purchases, one of the biggest winners for the month was the hard-hit travel sector, with spending intentions rising by 1.5 per cent — up 71.3 per cent on the year as eased pandemic restrictions drive demand for holidays. Travel agencies, cruise lines, airlines, airports, hotels and motels, tourist attractions, sports and recreational camps and bus lines all benefited. Motor home and RV rentals weakened, however, as travellers set their sights on interstate or overseas destinations. CBA chief economist Stephen Halmarick said consumer spending remained higher than a year ago but he cautioned the figures were skewed by rising inflation and higher transport costs as petrol prices remain near record highs. “Interest rate-sensitive sectors of the economy and are clearly starting to show the impact of recent Reserve Bank interest rate increases, with discretionary spending on entertainment, home buying and retail all declining on the month,” Mr Halmarick said. “With further interest rate increases expected through the remainder of 2022, we would expect to see discretionary spending weaken further in coming months.” The RBA lifted the official cash rate off its record low of 0.1 per cent at its May board meeting, followed by further increases in June and July which have taken it to 1.35 per cent. All big four banks have passed on each rate increases in full, piling pressure on families already weighed down by the soaring cost of fuel and groceries. RBA governor Philip Lowe has already warned homeowners to brace for more rates pain as the board fights to contain inflation — which it expects to hit 7 per cent when the latest measure is released later this month — and bring it back to within its 2 to 3 per cent preferred target range. The CBA has trimmed its GDP growth forecast for 2022 to 3.5 per cent — down from 4.7 per cent — and expects house prices to fall about 15 per cent from peak-to-trough by the end of 2023.