Spending falls for the first time in more than a year as households pull back

Australian household spending has fallen for the first time since September 2024, marking a significant shift after more than a year of steady growth, according to the latest CommBank Household Spending Insights (HSI) Index.

The Index declined 0.5 per cent in February, with spending falling across half of the 12 categories measured. Annual growth also slowed to 4.9 per cent, the weakest pace since August 2025.

“Spending has been remarkably resilient over the past year, supported by stronger household incomes. A decline after 17 months of growth is notable and suggests households may be starting to pull back,” CommBank Head of Australian Economics Belinda Allen said.

“It’s too early to say whether February marks the start of a sustained slowdown, but we are seeing softer momentum in discretionary categories. That’s typically where households adjust first when budgets come under pressure,” added Allen.

Utilities and education lead the drop

Utilities recorded the largest monthly fall, down 6.4 per cent. Education spending also declined 1.0 per cent and is now down 4.0 per cent over the year - the weakest annual result of any category.

Recreation and Transport also fell in February, although Recreation remains one of the strongest performers over the past year.

By contrast, spending on Health, Household Services, Food & Beverage goods and Communications & Digital all rose modestly in the month.

Discretionary spending shows signs of cooling

Spending on essential items rose slightly in February, while discretionary spending was flat after stronger growth in January. Over the year, discretionary spending growth has eased to 5.7 per cent, down from 6.6 per cent.

The slowdown in discretionary categories mirrors recent official data and may signal households are becoming more careful as cost-of-living pressures and higher interest rates continue to weigh on budgets.

“We have been expecting consumption growth to moderate in 2026 as households contend with higher interest rates, persistent inflation and slower income growth. February’s data may be an early sign that this adjustment is underway.

“More modest spending growth will help bring the economy back into balance and inflation back towards target, but rising energy prices remain a downside risk for households this year,” commented Allen.

Mortgage holders still spending more

Households with a mortgage continue to record the strongest annual spending growth at 4.0 per cent, compared with renters (1.6 per cent) and those who own their home outright (0.8 per cent). This breakdown emphasises the modest slowdown across all home ownership segments in recent months, although it has been more pronounced in those who own their home outright.

Education spending appears to be a key point of difference, detracting significantly from spending for renters and outright owners, while making a small positive contribution for those with a mortgage. Transport has weighed on spending across all three segments, with rising interest rates and inflation key factors to watch in coming months.

What it means for the Reserve Bank

Allen said consumer spending trends would be closely watched by the Reserve Bank as it assesses how households are responding to higher interest rates.

“The RBA has been looking for clearer evidence that demand is slowing. If we see further softness in spending over coming months, it would reinforce the case that monetary policy is working to moderate consumption and ease inflation pressures,” added Allen.