More going on 'must haves', less on wants

Spending grew across the board in August as inflation continued to drive up prices for everything from health care and tertiary education to petrol, home and car insurance and entertainment, according to the Commonwealth Bank household spending insights index.

The index, based on the transactions of seven million CommBank customers, climbed 0.7 per cent in August to reach an annual growth rate of 2.3 per cent.

Commonwealth Bank chief economist Stephen Halmarick said the big influx of international students had helped drive spending on education up almost 15 per cent in the past year while purchases at service stations jumped 9.5 per cent last month because of a leap in petrol prices.

But, in a sign that consumers are adjusting their spending under pressure from high inflation and interest rates, purchases of furniture, household appliances, men's and women's clothing and from luxury boutiques were all down, as were visits to beauty salons.

Overall, spending on household services like hairdressers, financial planners and repairs, was "very weak", the index showed, declining by 8.4 per cent from a year earlier.

Mr Halmarick said that although the index increased in August, it was growing much more slowly than a year ago, when it peaked at 18.7 per cent.

"The effects of [4 percentage points of] interest rate rises is clearly reflected in a significant slowdown in annual household spending growth," the CommBank economist said.

"People are spending more money on things that they might not like to spend more on, like insurance, and less on household goods and services."

But Mr Halmarick said there was evidence government energy rebates were working to help ease the financial strain.

While consumers were choosing to spend less at restaurants and cafes, spending on electricity, gas a water dropped 0.8 per cent in August to be up by just 0.3 per cent over 12 months - which showed "clearly government rebates are having an impact on what people are having on paying for utilities".

But the CommBank economist said that, once inflation was taken into account, spending was actually falling and would continue to weaken during the rest of this year and into 2024.

According to CommBank analysis, it is not just low income households feeling the pinch.

The bank said higher income families who were renting or had a mortgage were among those under the most significant pressure.

The index findings add to other evidence that people are cutting back sharply on their spending.

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The Australian Bureau of Statistics reported than consumer spending, which accounts for around 50 per cent of growth, increased by just 0.1 per cent in the June quarter and grew by a meek 1.5 per cent over 12 months.

The slowdown in spending coincided with a big hit to real disposable income, which shrank 1.4 per cent last quarter because inflation outstripped rising wages.

The wage price index increased by 3.6 per cent in the year to June, little more than half the rate of inflation, which jumped 6 per cent over the same period.

Mr Halmarick reckons interest rates will remain at 4.1 per cent until early next year and predicts the first rate cut may come as early as March. Markets put the chances of a rate cut next month at less than one in 10.