UBS says consumers could put brakes on spending by November as cost of living starts to bite

Australian consumers could put the brakes on their prolific spending by November as a combination of factors start to bite household budgets.

UBS says some consumers could begin to rein in their spending as cost of living issues start biting. Picture: Ian Currie

Australian consumers could put the brakes on their prolific spending by November as the combined weight of higher interest rates, falling house prices and the return of the full fuel excise this month crunches household budgets.

However, according to a new report on retail and the consumer sector from UBS, not all consumers will be looking to make cut backs in their spending, which began picking up pace as the nation emerged from the pandemic, with high income earners on more than $120,000 a year intending to accelerate their consumption fuelled by income and savings. Those consumers on lower incomes, under $48,000 a year, are showing signs of being more cautious on spending given flat wages growth and reduced savings.

It comes as recent estimates put Australia’s pool of excess savings built up through the pandemic at $165bn, with the household savings rate beginning to moderate to around 8.7 per cent in the June quarter against 11.1 per cent in the March quarter.

UBS analyst Shaun Cousins said retailers exposed to the more affluent customer, such as winemaker Treasury Wine Estates or Harvey Norman, and the younger consumer, like Universal Store, Lovisa and JB Hi-Fi, are better positioned in this environment.

Mr Cousins has forecast in a new report that if consumer spending remains resilient from November onwards – the date he has set as when consumers could begin to rein in their buying – it could point to a strong Christmas and for spending to then slow from February.

UBS predicts Christmas could be strong for retail if consumers remain buoyant through November. Picture: AAP

“The Australian consumer is facing significant headwinds from the rising cost of living across energy, food, fuel and interest rates, with house prices falling. These headwinds have yet to weigh on spending with the strong labour market – low unemployment and rising wages despite falling purchasing power – and elevated recent household savings key supports as the consumer returns to traditional spending patterns and engages in catch-up spend after difficult years with Covid,” he said.

He added that while household savings have started to moderate, the significant pool of “excess” savings remains a support, around $165bn according to UBS Economics, with the next catalyst the return of the excise on fuel, adding around 25c per litre to petrol prices from September 28.

“While a modest share of spending, it is a deemed ‘grudge’ purchase with the price frequently observed such that it could impact overall spending. We fear a slowdown in spending from November onwards, with the fuel excise, cumulative impact of the rising cost of living … key factors.

“If the consumer remains buoyant in November we suggest Christmas will also be strong with the prospect spending slows from February 2023 onwards as the rising cost of living headwinds bite.”

The UBS report, based on a survey of 1000 people last month, also showed that consumer spending expectations for the next 12 months have reached another record but the consumer base is split. High income earners’ spending intentions are accelerating aided by income and savings, while low income earners are more cautious on spending due to flattish income with savings to reduce.

The UBS survey found that travel intentions are increasing for both domestic and international travel, led by high income earners. Home improvement spending intentions remain elevated for high income earners but are falling for low and middle income earners.

Originally published as UBS says consumers could put brakes on spending by November as cost of living starts to bite