Australian household spending saw a modest increase of 0.3 per cent in January, according to EY chief economist Cherelle Murphy. The rise was largely driven by spending on essential items, including higher health expenditure and motor vehicle repairs and maintenance. Discretionary spending also experienced a slight uptick of 0.1 per cent, with consumers increasing their spending on air transport, and recreational and cultural services.
Murphy noted that several factors have contributed to maintaining elevated household spending levels. These include a resilient labour market, anticipated lower interest rates in 2025, and increasing wealth due to rising house prices. However, she cautioned that the annual inflation rate of 3.8 per cent recorded in January suggests that a significant portion of the increase in household spending is likely attributable to price increases.
The Reserve Bank Governor indicated earlier this week that a rate hike remains a ‘live’ option for the March Monetary Board Meeting. This consideration stems from domestic inflationary pressures and the potential for a global supply shock. The Governor also acknowledged the uncertainty surrounding the impact of recent geopolitical events on the Australian economy.
Murphy stated that the central bank will likely need to raise the cash rate again in the first half of this year. This perspective is informed by the strong increase in demand observed at the end of 2025. She added that further rate hikes are possible, considering the persistent pressures on prices.
