Aggressive interest rate hikes from the Reserve Bank of Australia (RBA) have affected many households in recent months. Like other nations, the Australian central bank has been increasing the base rate to try and tackle soaring inflation. However, this has increased financial pressures on households due to rising borrowing costs and mortgage repayments.
Many economists have expressed fears over the risk of a recession, which could result from a significant drop in spending as interest rates bite. However, with the cost of essentials also rocketing, Australians must pay more to purchase necessities such as food, petrol, clothing, and other products and services. On top of this, households face additional soaring costs such as energy, so many are now spending even more because they have no other option.
While there has been a drop in spending on some non-essential purchases such as health and fitness, homebuying, and household services, spending has increased sharply in other areas.
A decline in the HSI
In September, the CommBank Household Spending Intentions Index (HSI) dropped to 114.9 from 115.5 in August. This marked the first monthly drop since the central bank began to hike interest rates earlier this year.
CommBank Chief Economist Stephen Halmarick said: “The effect of rising interest rates is beginning to impact on household budgets and Australian consumer spending is adjusting accordingly. Households are seeing a noticeable difference to their mortgage repayments and therefore are considering how they can adjust their expenses elsewhere.”
The rise in interest rates has put households under a lot of financial pressure, but with the cost of everyday essentials rising, this has made a bad situation even worse for many. Spending on items such as food has climbed even higher despite the interest rate hikes. According to the Australian Bureau of Statistics (ABS), food spending increased by 2.4% in August.
Data also showed that compared to August 2021, overall household spending increased by 29%. The most significant increases were seen in expenditure on footwear and clothing, which grew nearly 76%. In addition, there was an increase in spending of almost 58% on transport.
The ABS figures also showed that compared to August 2019, before the global pandemic, household spending was up by 15.8% in August this year.
Financial misery set to continue
The RBA has expressed its commitment to bringing down inflation, and one of its key strategies is to continue hiking interest rates. Economists from CommBank are predicting another rate hike of 0.25% in November, and they said that the impact on households would continue to worsen over the coming months.