Consumer rebound here to stay, says Reserve Bank’s Sarah Hunter

A recent revival in household consumption is set to last, the Reserve Bank’s chief economist Sarah Hunter says, even as some economists say spending growth might have been driven by heavy discounting.

Reserve Bank chief economist Sarah Hunter, above, says the recent rise in household consumption did not appear to be a one-off, with the central bank assessing that spending on non-­discounted items had also risen strongly in recent months. Picture: NewsWire/Martin Ollman

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A recent revival in household consumption is set to last, Reserve Bank chief economist Sarah Hunter has said, even as some economists have warned spending growth might have been driven by heavy discounting during November’s Black Friday sales.

Ms Hunter said on Tuesday the recent rise in household consumption did not appear to be a one-off, with the central bank assessing that spending on non-­discounted items had also risen strongly in recent months

“Not surprisingly, spending on the types of goods that tend to have significant sales – such as household goods and clothing – did grow strongly in the quarter,” she said.

“However, we had also seen a modest lift in household disposable income from the middle of 2024, and discretionary spending not impacted by sales also showed signs of picking up, which suggested a genuine improvement in underlying momentum.”

Elevated inflation and the RBA’s aggressive increases in interest rates have crunched household consumption in recent quarters, but recent data indicates the tide may be turning as real income growth and the central bank’s first cash rate cut in four years bolster family budgets.

Retail spending figures, released earlier this month, show household consumption rose steadily in January, with expenditure supported by large-scale events including the Australian Open and test cricket.

Spending in cafes, bars and restaurants also increased.

The RBA’s expectation of a further pick-up in household consumption were shared by economists at NAB, who on Tuesday were particularly bullish about a further lift in retail spending in coming months.

“We continue to expect that a pick-up in household consumption will drive growth closer to its long-run trend over 2025,” NAB chief economist Alan Oster wrote in a note to clients. “However, it will be important to see both business investment and dwelling investment pick up to sustain growth – especially as some uncertainty around the ­extent of the consumer recovery remains.”

Ms Hunter also flagged that the RBA’s rate cut in February would spur an uptick in housing construction, which has been hammered by elevated borrowing and building material costs.

Separate ABS data, released earlier this month shows building approvals – a leading indicator of the housing construction pipeline – continued to gather pace, with detached housing permits increasing 8.9 per cent in January.

Apartment approvals, which can be highly volatile from month to month, surged by 41.6 per cent, the figures show.