Australians spent slightly more on hospitality and recreation in June despite cost-of-living headwinds, with the outlook for inflation and interest rates still uncertain ahead of an all-important data due within weeks.

Commonwealth Bank’s monthly household spending index, published last week, noted a 0.6 per cent jump in June as more people made online travel bookings and headed to the pub.

Overall recreation spending rose 3.2 per cent, while hospitality was up 3.8 per cent – results that Commonwealth Bank chief economist Stephen Halmarick said were “somewhat surprising”.

“We have witnessed a significant disparity in spending behaviours across home ownership categories, as renters pull back on spending in the year to June while mortgage holders and outright owners have increased spending,” he said.

“This suggests younger Australians, who are more likely to be renting, are tightening their wallets and likely spending more on essentials, given these are the fastest growing spending categories so far this year.”

The bigger picture for household spending is still bleak; the HSI rose just 3.9 per cent over the year to June and is even weaker on a population-adjusted basis, increasing only 2.6 per cent.

Source: Commonwealth Bank HSI

That’s the intended effect of the Reserve Bank’s steep interest rate hikes, which have piled pressure onto millions of households at the same time as the wider cost of living crunch.

The RBA is still waiting for more data on whether inflation has continued easing between March and June before deciding whether to deliver long awaited rate relief to hard-hit Australian families.

Economists are focusing their attention on the release of that all-important data on July 31.

Spending blip in June

Consumer spending data can be volatile month-to-month, particularly because one-off events or sales periods shifting unexpectedly can move spending out of one month and into another.

For example, while hospitality rose a “large” 2.1 per cent in June (after a 1 per cent lift in May), it came after a 3.9 per cent fall in April.

Annual spending growth for hospitality has slowed to 3 per cent a year, less than inflation.

Similarly, while more online travel bookings, gym memberships and sporting goods purchases drove recreation spending up 3.2 per cent a month in June, that came after falls in February, March and April.

“The annual rate of increase in recreation spending is very soft at just 0.2 per cent a year in June,” Commonwealth Bank economists said.

“The increase in the month of June needs to be seen in the context of a very soft annual increase.”

Source: Commonwealth Bank HSI

Renters hit hardest

The immediate outlook for consumer spending continues to be weak, with evidence that retailers are now being forced to discount goods heavily to encourage consumers to spend their money.

The HSI showed renters, in particular, are feeling the brunt of cost-of-living pain, with those who don’t own a house outright or pay a mortgage showing the biggest retreat into essential items.

“Cost-of-living pressures have been impacting the whole household sector,” CBA economists said.

“Spending by renters have lagged their counterparts since late 2022 with the difference growing over the past year given the large lift in rents.”

Source: Commonwealth Bank HSI

The good news is that lower spending will help put downwards pressure on inflation, which was up 3.6 per cent in the year to March and is projected to continue easing in the second half of 2024.

But the big unknown is still whether stubborn areas of inflation such as rents and utility bills will throw a spanner in the works for the Reserve Bank, which has left interest rates on ice all year.

“Looking ahead, the Household Spending Insights will be an early indicator of the impact of the income tax cuts and electricity rebates that began on 1 July,” Halmarick said.

“Our base case remains for the next move from the RBA to be easing of monetary policy, however this view will be dependent on upcoming employment and inflation data.”