‘A really stark indicator’: People slashing food spending to cope with rising costs

Shoppers are cutting back their spending at supermarkets, bakeries and butchers to cope with soaring insurance and education costs as household spending continues to slump, and Australia’s biggest bank predicts spending will continue to fall due to persistent cost-of-living pressures.

Monthly household spending fell by a significant 1 per cent in April, according to Commonwealth Bank’s households spending insights, and over the past year spending has grown by only 2.6 per cent, down from 3.9 per cent in the year to February.

Spending on food and beverages has fallen.Credit: Dominic Lorrimer

Leading the monthly and annual spending declines were big falls in spending on food and beverages, which includes groceries but not dining out. Over the month, food and beverage spending fell 3.8 per cent, while in the year to April it fell by 1.4 per cent.

Commonwealth Bank chief economist Stephen Halmarick said it was unusual for food and beverage spending to be so weak.

“That’s a really stark indicator of just the pressure a lot of households are under,” he said.

Overall spending habits also varied widely by household type. Households that own their homes outright lifted their annual spending by 6.3 per cent, while those with mortgages increased their annual spending by 4.5 per cent. Renters, who make up a third of all households, lifted spending by only 1.3 per cent.

Halmarick said the figures reinforced the point that renters and those on lower incomes had to adjust their spending “much more aggressively”.

The change in spending does not account for inflation, which was 3.6 per cent over the year to March. Taking inflation into account, overall spending has gone backwards.

“Everything related to discretionary spending, having a bit of a good time, is down pretty sharply,” Halmarick said.

“You can see food and beverage spending is now negative in annual terms, and that’s again, that’s a nominal dollar. So after inflation, it’s really deeply negative.”

In contrast, spending on education rose – skyrocketing by 10.8 per cent over the year – as did spending on insurance (up 9.6 per cent) and utilities (up 9 per cent).

CommBank IQ’s head of innovation and analytics, Wade Tubman, said the reality was people were being forced to spend more on things that they could not go without, including healthcare, and it was difficult for consumers to find ways of saving on products such as insurance.

But in terms of food and beverages, households had plenty of choices, from high-end grocers to discount or bulk retailers, and premium to home brand products, so they were making adjustments to their grocery lists to make things work.

“Consumers are making tougher and tougher choices to try to get back out some of these price rises,” Tubman said.

He said the pressure on household budgets would not change soon.

“Unless we get some sort of big deflationary period, people are going to have to remix their wallet and change their spending, sort of at least for the foreseeable couple of years.”

The Reserve Bank forecast last week that inflation would rise to 3.8 per cent by the middle of the year and remain there until next year, while new Treasury modelling released before Tuesday’s budget forecast inflation would fall to the top of the central bank’s target 2-3 per cent range by the end of 2024.

Halmarick said the Commonwealth Bank sat somewhere in the middle – forecasting inflation to reach 3.2 per cent by the end of the year – due in part to the pullback in consumer spending.

“Real household disposable income growth stays negative until towards the end of this year, right. So that’s going to drag everything down,” he said.

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