Consumer spending plunge brightens hopes of rate cut
A decline in spending on household goods in the wake of Black Friday sales has bolstered hopes of an RBA rate cut as soon as February.
Australians pulled back sharply on purchasing household goods after bringing forward spending during Black Friday and Cyber Monday sales.
Consumer spending fell 1.8 per cent in December after a rise in November, with financially stretched households adapting purchasing habits to prioritise sales periods, the Commonwealth Bank has found.
The bank’s household spending insights index recorded a 7.7 per cent drop in discretionary spending, reinforcing the view that Australian consumers are continuing to struggle.
Shoppers brought forward holiday spending to take advantage of sales activities, said CBA chief economist Stephen Halmarick.
“When those sales periods are not there, things really drop away quite quickly,” he said.
“Overall, consumer spending remains pretty subdued.”
The bank’s index gleans spending insights from the de-identified payments data of about seven million retail customers.
Rises in essential categories such as utilities, insurance and transport were outweighed by a steep drop in spending on household goods, which plunged 8.3 per cent.
Combined with falling inflation, the pullback in spending bolstered CBA’s view that the Reserve Bank of Australia will cut interest rates at its next meeting in February, Mr Halmarick said.
It’s no longer an outlier opinion among the big four banks. ANZ recently brought forward its rate cut prediction to February on the back of lower-than-expected inflation figures for November.
As a result, Halmarick revised down to 0.5 per cent his core inflation forecast for the December quarter, due out on January 29, which would put the six-month annualised underlying inflation rate near the midpoint of the RBA’s target range at 2.6 per cent.
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He predicts the central bank to cut rates by 100 basis points over 2025, exceeding market expectations of about 60 basis points of cuts.
That would weigh further on the Australian dollar, which has fallen to near five-year lows against its US counterpart in recent days.
But the differential between market expectations and what actually happens to the cash rate won’t have too large an impact, given the major driving force behind the exchange rate has been the strong performance of the greenback, Halmarick said.
“Over the course of the year we have the dollar averaging around 61 or 62 US cents, so close to where it is today, but we have said the risk to that forecast is a move down to 60,” he said.
