Household spending growth hits fastest pace in 3 years

Household spending rose 1.1% in July compared to the previous month, coming in 7% higher than in July 2025.

The Australian Bureau of Statistics' monthly household spending indicator, released Thursday, is the latest data to overshoot market expectations and adds to the case for another Reserve Bank cash rate increase this year.

It's the third consecutive month of strong gains, following increases of a revised 1% in June and 1.2% in May.

Household spending is now growing at its fastest rate since June 2023, with momentum picking up pace over the last three months.

The data comes hot on the heels of Wednesday's stronger-than-expected inflation figures, suggesting both higher prices and increased volumes have played a part in the above-consensus figures.

Spending up across the board

The increase in spending was broad-based, with all categories recording growth in July.

Discretionary spending rose 1% for the month and was 7.8% higher over the year.

Recreation and culture spending recorded a 1.5% month-on-month increase while spending at hotels, cafes, and restaurants was 1.1% higher.

The data showed the latter was driven by increased spending on catering services.

Spending on essentials was also strong in July, up 1.1%, largely on the back of increased health spending, while food spending was not far behind at 1%.

The ABS attributed some of the strength in food and hospitality services spending to price rises, consistent with stronger figures in these categories in Wednesday's inflation data.

Inflation/volumes: what is driving spending?

NAB economists noted if higher prices are behind the spending growth, it reinforces concerns inflation is elevated.

But, they said, if it was stronger volumes driving spending higher, it suggests household demand is proving resilient.

"Both interpretations are consistent with our view that the RBA is likely to raise rates in September," they said.

In the hours before the household spending data was released, NAB announced it was expecting the Reserve Bank to hike the cash rate next month, in the wake of Wednesday's inflation figures.

CommBank and ANZ also changed their cash rate outlooks on the back of the inflation data, with both backing a November cash rate increase to 4.60%.

Westpac remains the outlier, believing weaker wages growth and a softer-than-expected jobs market will see the cash rate remain on hold for the remainder of the year.

'Adds to the case' for cash rate hike: CBA

Commonwealth Bank economists noted the July household spending numbers were "well above" their own and market expectations.

"The strength suggests household spending may not be slowing as fast as we expected, and adds to the case that tighter monetary policy is needed," they said.

They reiterated they expect the Reserve Bank to raise the cash rate by 25 basis points in November, with the risk of an earlier hike in September.

However, they acknowledged the RBA's September meeting is "still live", with data on overall economic activity and the labour market still to come and likely to influence the decision.

The Reserve Bank's next monetary policy board meeting is scheduled for 28-29 September.