Australia’s spending slowdown may be turning a corner: CBA Economists

CBA Economists Belinda Allen and Harry Ottley today published a note assessing consumer spending trends – below is an overview the analysis.

Key takeaways

• The recovery in household spending in Australia has been slower than expected, until now.
• Consumer confidence is rising, pointing to renewed optimism.
• Younger households are leading the recovery, while older Australians remain cautious.
• The recovery is expected to gain traction through the end of 2025 and into 2026.

After a sluggish few years, household spending is finally showing signs of recovery. CBA economists expect this momentum to continue through the rest of 2025 and into 2026, as incomes rise and interest rates fall.

The slow rebound has been shaped by what economists call a “real income shock” — a sharp drop in the purchasing power of households due to high inflation, rising interest rates and tax pressures. These factors squeezed budgets and led many Australians to cut back on spending or prioritise saving and debt repayment.

Confidence and incomes are improving

Now, the tide is turning. Real household disposable income - the money left over after tax, interest payments and inflation - began rising again in late 2023. This has been helped by stage 3 tax cuts and the Reserve Bank of Australia’s (RBA) decision to start lowering interest rates.

“We’re seeing a delayed but encouraging response to improving fundamentals like rising incomes, moderating inflation and a resilient labour market,” said Senior Economist Belinda Allen. 

“Green shoots are emerging in our household spending data, and sentiment is lifting.”

Discretionary spending leads the way

Spending on non-essential items, also known as discretionary spending, is leading the recovery. Recreation and hospitality have seen strong growth, with younger age groups (20–34) showing the biggest lift in spending. In contrast, older Australians (65-plus) remain more cautious.

CBA’s Household Spending Insights recorded 6.4 per cent annual growth in July 2025, with ten consecutive months of gains. Consumer sentiment also rose 5.7 per cent in August to its highest level since February 2022.

What it means for interest rates

CBA expects household consumption to grow 0.6 per cent in the June quarter, lifting the annual rate to around 1.5 per cent. If this trend continues, the RBA is expected to cut the cash rate by 25 basis points (bp) to 3.35 per cent in November - the fourth rate cut in this cycle.

Markets are pricing in at least one more cut in 2026, but further easing will depend on how strongly consumers respond in the months ahead as well as the labour market and inflation data.

See the full analysis here. 

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