Rising interest rates and soaring inflation have taken their toll on consumers across Australia. Many are struggling to make ends meet financially, and the prospect of further rate hikes coupled with continued living cost increases is causing concerns for many households.
Officials from one of the leading Australian banks, the Commonwealth Bank of Australia (CBA), have claimed that higher interest rates and inflation are starting to bite. According to the bank, there has been a noticeable change in spending habits as consumers try to cut costs to cope with the ongoing situation. Recently, the Reserve Bank of Australia unveiled the first official interest rate hike in over a decade as part of the struggle to bring inflation back under control. Evidence suggests that tighter monetary policy is impacting spending on non-essential purchases.
Clear signs of cutbacks among consumers
According to data, the CBA’s household spending intentions index increased by 0.8% in August. However, despite this slight increase, bank officials said there were clear signs that consumers were starting to make cutbacks in some areas.
CBA chief economist Stephen Halmarick said: “While the index rose in August, we’re seeing weakness in discretionary spending following recent interest rate increases and a growing move to value purchasing. For instance, while grocery spending remains high, we’re hearing customers are swapping to value products in response to higher food prices.”
He added: “Spending for household services has also risen 4 percent in August, with charitable donations leading the category, likely signaling a stressful environment for many in the community.”
Spending intentions drop for travel and entertainment
Among the areas where spending intentions have declined due to the financial climate were entertainment and travel, which fell by 7.2% and 3.9%, respectively. In addition, CBA officials said there had been an increase in home loan applications in August. However, they were still significantly lower than last year.
Retail spending intentions have also fallen by 1.3% due to a drop in purchasing items such as clothing, footwear, and sports gear. However, there was an increase in intentions to spend on things such as groceries, garden supplies, and electronics.
The data came from a report covering August, the month when the central bank hiked the base rate by 0.5%. This has since been followed by another 0.5% rate increase, with the official cash rate now 2.35%, the highest for seven years. With continued monetary policy tightening planned, it could continue to rise.