Key points
  • Australian households saved 6.2% of their income during the March quarter, down from the previous period.
  • Essential spending rose but discretionary spending remained subdued.
  • Higher interest costs are eroding disposable income, weighing on non-essential spending.

The latest ABS data revealed Australian households saved an average 6.2% of their income over the three months to March.

This is down from the previous quarter figure, which was revised up to 7.0%, the highest level since September 2022. 

The decline points to a shift in household behaviour, with Aussies saving less as spending outpaced the increase of disposable income, per the ABS.

“Household disposable income was driven by a 1.2% rise in compensation of employees while the increase in income tax and interest payments detracted from growth,” ABS National Accounts head Grace Kim said. 

The economy as a whole expanded 0.3% through the quarter, slowing from the previous period, while GDP per capita slipped back to negative territory (-0.1%).

Discretionary spending subdued

Australian households reined in non-essential spending as cost-of-living pressure continues to bite.

Household spending on essential goods rose 0.8%, while discretionary spending was only up 0.1%

Overall household spending rose 0.5% in the March quarter, largely driven by elevated spending on electricity, gas and other fuels (up 11.7%). 

The uplift reflects the effects of government rebates winding down and rising out-of-pocket expenditure for households. 

“Rising interest rates and significantly higher fuel costs in the March month likely created an environment for more cautious consumer behaviour,” Ms Kim said 

“This resulted in reduced spending across a range of household expenditure categories.”

The data predates the halving of the fuel excise on 1 April. 

Households drawing down buffers

The drop in savings despite modest gains in consumption suggests households are increasingly relying on financial buffers in the face of higher mortgage and living costs. 

Elevated inflation further amplifies the pressure. 

Consumer prices surged 4.6% annually in March as higher fuel and transport costs flow through to household budgets. 

As the recent cash rate hikes flow through, higher mortgage repayments and borrowing costs are eroding disposable income and limiting the capacity to both save and spend.

Prior to this quarter, the cash rate was 3.60%.

The cash rate is now back at its previous peak of 4.35%, where it is expected to remain following the RBA's next meeting on 16 June.