Consumer spending in Australia saw a modest uptick in May 2024, largely driven by increased expenditures on insurance, according to the latest CommBank Household Spending Insights Index (HSI).
The HSI rose by 1.1% to reach 150.21, recovering from a 1.0% decline in April, amid persistent spending volatility throughout 2024.
While May experienced a rise, overall household spending has been subdued since January, with an average monthly increase of just 0.1%. This figure is significantly lower than the 0.8% average monthly growth seen in early 2023.
Insurance and Essential Expenses Drive Annual Growth
The index revealed that spending on insurance led the categories contributing to the annual increase, with a significant rise of 8.6%.
Other essential categories such as utilities (+7.1%), transport (+6.1%), and education (+6.0%) also saw notable increases over the year to May 2024. These figures highlight consumer prioritization of necessary expenses in a cautious spending environment.
Conversely, discretionary spending categories such as motor vehicles (+1.6%), recreation (+2.6%), communications and digital (+2.6%), and household goods (+2.8%) experienced much slower growth over the past 12 months.
Regional Spending Trends
Regionally, all states and territories, except the Northern Territory, recorded positive growth in May. Queensland (+1.8%), Tasmania (+1.7%), and Victoria (+1.6%) led the month’s increases.
On an annual basis, the Northern Territory (+5.7%) and Western Australia (+5.6%) showed the highest spending growth, while the ACT (+2.6%), Victoria (+3.7%), and New South Wales (+4.8%) saw softer growth rates.
Economic Insights
CBA senior economist Belinda Allen commented on the subdued consumer environment despite the May uptick.
“Spending in May bounced back from April, continuing the spending volatility we have seen throughout the year. However, when looking at trends since January, the consumer spending environment remains muted, with an average monthly increase of just 0.1%, largely driven by essential categories like insurance, utilities, and transport. This suggests that consumers are still making spending choices and prioritizing essential purchases,” she said.
Impact of Upcoming Tax Cuts
Allen also addressed the anticipated impact of upcoming tax cuts, suggesting they are unlikely to significantly boost consumer spending.
“It is unlikely that tax cuts commencing in the third quarter of 2024 will materially impact consumer spending. We expect households to save rather than spend their tax cuts. Looking forward, the key for consumption will be growth in real household income. The first quarter 2024 National Accounts data indicated this remains weak. Assuming the labor market loosens and inflation continues to cool, we anticipate the RBA can commence an easing cycle in late 2024. The challenging inflation backdrop and a shift in household spending behavior are key risks to this base case.”
Spending Patterns by Age Group
The recent CommBank iQ Cost of Living Insights Report highlighted that Australians in their mid-to-late twenties are reducing their spending compared to other age groups.
