Household spending increases 0.3% in August

The Commonwealth Bank Household Spending Indicator (HSI) showed 0.3% growth through August after rising 0.7% in July and 0.5% in June.

With Q2 GDP numbers confirming consumer spending increased above expectation from April to June, Senior CommBank economist Belinda Allen says the Australian economy is "picking up steam".

"Lower interest rates, together with moderating inflation and tax cuts from 2024 are supporting a more favourable environment for consumer spending," she said.

For mortgage holders hopeful about a September RBA cut though, Ms Allen says this "reinforces" Commbank's view that there will be only one more rate cut this cycle.

"We expect the RBA to cut the cash rate by [another] 25 bp to 3.35% in November this year," she said.

"The RBA next meets 30 September and we expect no chance in the cash rate at this meeting."

What are people spending more on?

Nine out of the 12 spending categories saw an increase in spending through August. 

Utilities (up 2.9%) was the biggest contributor to growth, with many electricity and gas price increases coming throughout July.

Over the 12 months to August, spending on all categories increased, except for transport which declined 1.6% through the year despite a 0.2% gain in August.

Essential spending rose 0.6% through the month after a 0.3% increase in July, while the pace of discretionary spending growth slowed from 0.8% in July to 0.3%.

The annual pace of growth to the HSI is now 5%, which Ms Allen says is roughly in line with CBA modelling.

That's also in line with the most recent estimate from the ABS, with the July Household Spending Indicator showing 5.1% growth from July '24 to '25.

Could inflation pick up?

The flipside to the economy recovering quicker than expected is the potential for inflation to also start to increase pace again.

Prices rose 0.95% in July, well above expectation, with a 2.8% increase over the preceding 12 months compared to 2.3% market expectations.

Combined with unemployment dropping to 4.2% in July, consumer spending climbing might be a slight cause for concern for Governor Michele Bullock and the RBA, who had just started to sound more confident in the inflation outlook.

The more comprehensive quarterly CPI is generally considered the definitive measure of inflation, with the monthly read less comprehensive, so much is likely to depend on the Q3 numbers which are set for release just before the October decision.

It means the September decision will be similar to the July meeting in that it will take place before the relevant quarterly inflation figures come out.

Given the hold in July, the same logic would dictate a hold in September, particularly with consumer spending running relatively hot.