Stubborn household spending is making the Reserve Bank\u2019s inflation fight even more difficult, ahead of a key rates call later on Tuesday.<\/p>\n
Just hours before the Reserve Bank of Australia\u2019s crucial cash rate decision, NAB\u2019s household spending data shows consumers are continuing to spend, despite storm clouds on the horizon. <\/p>\n
Consumer spending rose 0.4 per cent for a robust February, while spending over the last 12 months is now up 6.7 per cent.<\/p>\n
NAB economist Gareth Spence told NewsWire overall household budgets are holding up, despite cost-of-living pressures. <\/p>\n
\u201cWhat we do know is over the last year real incomes have improved \u2026 growing at about 3.8 per cent and that is a big contrast to the last little inflation cycle,\u201d he said.<\/p>\n
\u201cWe think overall \u2013 despite everything that is going on in the world and potential rate hikes today \u2013 that households are actually going into this relatively well-positioned on average.\u201d<\/p>\n
Mr Spence said while overall households were holding up, there would be a number of Australians feeling the pinch of higher cost of living. <\/p>\n
What are Australians spending money on<\/p>\n
Spending on services rose 0.5 per cent for the month across most categories, led by cafes and restaurants, albeit off a softer January.<\/p>\n
But it wasn\u2019t all positive for Australian households.<\/p>\n
According to NAB, spending on utilities and telecoms continued to rise over the year, largely driven by higher electricity costs. <\/p>\n
At the same time goods spending increased by 0.4 per cent in February, but this was driven by food costs which were up 0.9 per cent. <\/p>\n
Meanwhile data from Circana shows while households are spending more in areas such as food, they are still looking for value.<\/p>\n
Early data shows private label grocery sales have reached $49bn, now accounting for nearly 40 per cent of unit sales, as shoppers increasingly prioritise value.<\/p>\n
Meanwhile, two-thirds of Australian shoppers now see private labels as a credible alternative.<\/p>\n
Households budget ready for inflation shock<\/p>\n
Even as spending continues to rise, household budgets are actually improving.<\/p>\n
A combination of stage three tax cuts and three interest rate cuts in 2025 improved how much households on average could save. <\/p>\n
Figures released in early March by the Australian Bureau of Statistics show household saving to income ratio increased to 6.9 per cent, up from 6.1 per cent in the September quarter. <\/p>\n
This is now the highest level since the September 2022 quarter and is above the longer term pre-Covid average savings rate.<\/p>\n
Household disposable income rose 1.8 per cent, significantly higher than the nominal increase in household spending of 1.1 per cent.<\/p>\n
\u201cWe know that over the last couple of years, households have really repaired their balance sheet,\u201d he said. <\/p>\n
\u201cThat last shock we faced, they ran down their savings and while it is different across people, we think households are relatively well positioned.<\/p>\n
Mr Spence warned households that if the oil price remained above $US100 ($A142) it would directly add about 1 per cent to cost-of-living. <\/p>\n
Households confidence plummets<\/p>\n
While Australian household spending remains high, fresh figures from ANZ and Roy Morgan show consumer confidence has slumped to levels last seen at the start of the Covid pandemic.<\/p>\n
With oil shock fears rising at the same time as further interest rate pain, consumers scored their confidence at just 68.5.<\/p>\n
Anything above 100 suggests they are optimistic about the future, while a score below 100 shows they are pessimistic. <\/p>\n
ANZ economist Sophia Angala said the falls were across the board, as households felt increasingly pessimistic across one-year and five-year periods. <\/p>\n
\u201cInflation expectations are still at their highest since November 2022, supported by the recent sharp rise in petrol prices,\u201d she said.<\/p>\n
\u201cWe expect the RBA board to increase the cash rate by 25 basis points to 4.1 per cent in its decision today. <\/p>\n
\u201cWith inflation above target and the labour market viewed as tight by the RBA, there is likely to be less tolerance than usual to an external inflation shock, in this case from higher oil prices.\u201d<\/p>\n