Australian Households Prioritize Essential Spending in July Amid Stubborn Inflation and High Mortgage Rates
In July, Australian households focused on spending on essential services like healthcare, saving extra cash from recent tax cuts as they navigated challenges from persistent inflation and elevated mortgage rates. Data from the Australian Bureau of Statistics revealed a 0.8% increase in overall household spending on a seasonally adjusted basis, recovering from a 0.5% drop in June.
Non-discretionary goods and services saw a notable 1.4% growth, the most rapid monthly increase since September last year, with healthcare spending surging by 6.8%. Moreover, Australians allocated more funds towards miscellaneous goods and services like vehicle repair or maintenance in July.
Robert Ewing, the ABS head of business statistics, highlighted that non-discretionary spending outpaced discretionary spending as households grappled with cost-of-living pressures. Although tax cuts and electricity rebates provided relief in July, households seemed to have saved most of the additional funds, leading to a significant increase in deposits.
Household deposits expanded by 2.1% in July, reaching A$31 billion ($20.78 billion), marking the swiftest monthly growth in three years according to data from the Reserve Bank of Australia. However, other government data for the April-June quarter indicated a 0.2% decline in household spending, contributing to the economy's slowest growth since the early 1990s.
Gareth Aird, CBA's head of Australian economics, noted that spending on various discretionary categories decreased during the quarter, including a 1% drop in food spending. Aird explained that households were not necessarily consuming less food but were opting for less expensive options, reflecting the impact of rising cost of living pressures.
In summary, Australian households are prioritizing essential spending in the face of economic challenges, with a focus on healthcare and non-discretionary goods and services. The increase in deposits suggests that consumers are cautious with their finances despite recent tax cuts. The decline in overall household spending and the shift towards more affordable options indicate the impact of rising cost-of-living pressures on consumer behavior and the broader economy.
