Hot or not? Strong spending complicates rate picture
Household spending continues to gain momentum, raising expectations for a rate hike by the Central Bank.
After official figures released on Monday showed spending was stronger than expected in November, data from the Commonwealth Bank revealed no decline in consumption despite a more pessimistic outlook for interest rates.
CBA’s report on household spending insights from de-identified payment data from seven million retail customers rose a further 0.7 per cent in December.
The strong rise came despite some analysts predicting a slowdown in December spending data as Black Friday sales pushed spending into November and the Westpac-Melbourne Institute consumer confidence index fell in December.
According to Australian Bureau of Statistics data, annual spending growth rose to 6.3 percent, indicating that real household consumption was above expectations.
“The strength in household spending was stronger than expected later in the year, indicating an appetite for spending that exceeded our previous forecasts,” said Belinda Allen, Commonwealth Bank’s head of Australian economics.
Spending on entertainment and dining out ahead of Christmas supported the spending increase; food and beverage spending rose one percent, the category’s strongest monthly increase since April.
“This momentum raises concerns that the economy may be overclocking and supports our expectation of a rate hike in February.”
The key theme for 2026 will be whether capacity constraints will limit the growth rate of the Australian economy and contribute to a sustainable revival in inflation.
Reserve Bank of Australia deputy governor Andrew Hauser warned in a speech in November that Australia could be “stranded” by low productivity unless policymakers find a way to create more supply capacity.
Bank of Queensland chief economist Peter Munckton said low unemployment and high capacity utilization rates measured in NAB’s jobs survey supported the RBA’s assessment that there was little spare capacity left in the economy.
But it is not yet clear whether this means the RBA should raise interest rates.
“Data in the coming months will confirm whether the increase in inflation in the second half of last year was due to a series of one-off price increases or to excess demand,” he said.
“If the former happens, cash rates probably won’t rise and economic growth could be as good as last year.
“If it is the latter, then interest rates will likely rise this year (possibly by half a percentage point), leading to a slightly weaker economic outcome in 2026 than in 2025.”
Official spending data for December will not be published until after the Central Bank’s board meeting on February 2-3; Instead, there will be new employment data and, more importantly, December quarter inflation figures that will guide the RBA’s decision.
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