New Data Reveals Consumer Spending Still Slow, Despite Inflation Drop

People shop for fresh produce at the Queen Victoria Market in Melbourne, Australia on July 4, 2023. William West/AFP via Getty Images

Despite a drop in headline inflation and tax cut reforms, Australian household spending is yet to see a surge.

Figures from the Australian Bureau of Statistics (ABS) revealed that household expenditure remained flat in August. The data, released on Oct. 4, showed no change in household spending for the month, following consecutive declines of 0.5 percent in July, and 0.1 percent in June.

ABS head of business statistics, Robert Ewing, stated, “Growth in household spending has stalled at the start of the financial year, even as the federal government’s Stage 3 tax cuts came into effect on 1st July.”

The GDP numbers released last month also revealed a drop in household consumption.

Labor Treasurer Jim Chalmers said the main takeaway from the national accounts was a 0.2 percent fall in household consumption, with people pulling back on discretionary items due to inflationary pressures.

Combined with the lowest annual household savings ratio in 17 years, Chalmers admitted households were clearly under pressure

The data also highlighted that spending on services rose 0.4 percent in August, driven by higher expenditure on air travel, hotel accommodation, and dining out. However, this growth was offset by a 0.3 percent fall in spending on goods, with households reducing purchases of new vehicles and automotive fuel.

For the same period last year, most states and territories saw household spending increase, with Western Australia leading at 3.9 percent growth. Queensland and the Northern Territory followed with 2.7 percent and 1.9 percent respectively.

Victoria and Tasmania, however, experienced a 0.3 percent decline in spending.

IMF Urges Spending Control

A day before the ABS report, the International Monetary Fund (IMF) advised the Australian government to control spending to bring inflation down.

While acknowledging that cost-of-living support can temporarily reduce prices, the IMF cautioned that such measures could stimulate broader economic activity, potentially undermining inflation control.

In its annual report on Australia’s economy, the IMF noted that the recent tax cuts may boost household disposable income but warned of uncertain broader outcomes.

The IMF forecast a gradual recovery for the economy, with growth expected to reach 1.2 percent in 2024, and 2.1 percent in 2025, driven by real wage growth and strong public demand.

The predictions are slightly more optimistic than RBA numbers that suggest that inflation control will only be achieved by mid-2025, with Australia overcoming inflation by 2026.