Household spending rose 0.6 per cent in July, with households continuing to prioritise spending on experiences and discretionary categories despite downward pressure on incomes and housing prices.
The latest data showed monthly gains across 10 of the 12 categories, led by insurance, recreation and hospitality. Education saw the largest decline in July, followed by utilities, likely the result of warmer-than usual weather in recent months.
Spending on recreation rose 1.1 per cent in July, with spending on hospitality increasing by 1.0 per cent. Spending on the football World Cup, which ended on 19 July, and The Odyssey movie likely supported the increase in spending over the month.
“Spending indicators have been choppy lately, though the annual rate of growth remains below late 2025, suggesting that spending has slowed over 2026,” CommBank’s Senior Economist, Ashwin Clarke said.
Annual growth ticks up as discretionary spending strengthens
Household spending growth has so far been weaker in 2026 compared to 2025, but the gap is narrowing.
The average monthly increase over 2026 has ticked up slightly to 0.4% from 0.3% in the previous month, compared to the 0.5% increase over 2025.
Discretionary items make up for three of the top four contributors to overall annual growth, in particular spending in hospitality and recreation. Household goods spend was also strong, supported by promotional activity at online marketplaces.
“The discretionary strength on the face of it suggests households are not in a saving mindset,” Clarke said.
“However, we have seen some listed companies report that value conscious behaviour is on the rise as part of recent earnings outlooks. In addition, the weakness in essentials, in particular utilities and the temporary respite in fuel costs in previous months, may have made it easier for household budgets to accommodate this spending.”
On a monthly basis, discretionary spending accelerated to 0.8%, while essential spending held at 0.4 per cent.
“The data has been quite uneven over the year. Financial conditions for households have tightened, following three interest rate hikes, higher fuel prices and declining housing prices.
The key question is whether households will be willing to use their financial buffers to shrug off these headwinds and continue to spend like the better times in 2025,” Clarke said.
“As we have been highlighting for some time now, there remains a risk that household spending does not slow as we expect it to. The pick-up in the pace of growth this month may point to the possibility that weakness in earlier months was temporary, driven by the Middle East conflict. If spending does not continue to slow, this would make the RBA uncomfortable that inflation will not moderate from here.
“Our expectation is that spending slows in coming months in line with the lagged impact of rate hikes, the wealth effect and slow household income growth.”
