Household spending flat as RBA weighs rate rise in a few hours

Australia’s latest household spending data give the Reserve Bank a slightly softer picture of consumer demand only hours before today’s interest-rate decision.

The ABS Monthly Household Spending Indicator was flat in August in seasonally adjusted, current-price terms, after rising 1.1 per cent in July. Spending was still 6.8 per cent higher than a year earlier, while the trend estimate rose 0.5 per cent over the month and 6.3 per cent through the year.

The composition matters. Discretionary spending fell 0.3 per cent, while non-discretionary spending rose 0.6 per cent. Services spending fell 0.3 per cent, offset by a 0.3 per cent rise in goods. Transport was the standout category, up 2.3 per cent, while recreation and culture fell 1.4 per cent.

For the RBA, this is a mixed signal. The flat monthly result suggests the strong spending growth through June and July has lost momentum. That is consistent with the Bank’s objective of keeping aggregate demand subdued enough to reduce capacity pressures.

But the annual figure remains strong, and the 0.5 per cent rise in the trend measure suggests underlying spending has not stalled. These are also nominal figures: part of the 6.8 per cent annual increase reflects higher prices rather than stronger real consumption.

The result therefore slightly reduces the pressure for tighter policy at the margin, but is unlikely to dominate today’s decision. The RBA has repeatedly said inflation remains too high and that excess demand may still be present. July trimmed-mean inflation was 3.6 per cent, while August unemployment has risen to 4.6 per cent. The August CPI is not released until tomorrow.

The Board therefore faces two signals: inflation and underlying demand remain firm, while household spending and the labour market are showing clearer signs of slowing. Before today’s release, markets were pricing roughly a 90 per cent probability of a 25 basis point rate increase.