Australian households tighten their wallets as cost of living bites, says ANZ

Strong inflation and immigration growth has failed to prevent consumer spending from diving to a two-year low.

Consumer spending has fallen off a cliff as households continue to be slammed by cost-of-living pressures fuelled by the perfect storm of elevated inflation and soaring housing expenses.

ANZ-observed spending data shows that household spending in the week to June 11 was weaker across all major categories compared with 2022, despite inflation and population growth over the year.

Spending was above pre-Covid levels given a strong uptick in inflation, but was comparable to 2021 when CPI growth was 3.8 per cent in the June quarter compared with the most recent data set of 7 per cent in March.

ANZ senior economist Adelaide Timbrell said trends seen across observed spending in shopping, dining and travel suggested another weak outcome for discretionary spending in the second quarter.

Australian Bureau of Statistics data showed that real discretionary consumption fell 1 per cent in the March quarter.

“Far from a shift from goods to services, the household spending pullback is seen in most categories,” she said.

“The end-of-financial-year sales will be key to how ANZ-observed spending ends Q2.

“There is generally a pick-up in spending in the second half of June. If this does not occur this year, it will signal even further weakness ahead as households navigate higher interest rates and ongoing inflation.”

Consumer confidence dropped to its lowest level since April 2020 after the Reserve Bank delivered its twelfth interest rate rise since May 2022.

The ANZ-Roy Morgan Consumer Confidence index fell 3.1 percentage points to 72.7 last week, while current financial conditions declined 1.9 percentage points and that was 0.1 per cent off its record low.

Spending on travel has had the most substantial swing – from a peak of 70 per cent year-on-year growth in August 2022 to a negative 20 per cent growth in June.

Groceries spending was flat as Coles and Woolworths reported that households were turning to store-brand products to save money.

ANZ data showed that dining had weakened to 2019 levels, while public transport expenses jumped above pre-Covid levels as more people returned to the office.

Retailers have issued profit downgrades in recent weeks. Leaked internal sales spreadsheets from David Jones, obtained by The Australian, showed that its city, suburban and regional stores experienced double-digit sales retreats – some as much as 30 per cent — between June 4 and June 10.

Domino’s Pizza was hammered by investors following an admission on Tuesday that underlying earnings had not improved since its half-year results and it planned to close 70 underperforming outlets to combat weak demand.

Clothing chain City Chic last month told investors sales across Australia had plunged by 10.8 per cent and it was struggling to offload stocks from its stores due to a decline in demand by its customers resulting in more stock at its warehouses.

Households were likely to face further pain in the months ahead. The RBA is expected by many to increase rates in July, as Australia’s labour market defied expectations by adding four times the number of jobs than had been expected in May.