ACT consumers moving to rein in spending

Data on retail transactions collected by the Australian Bureau of Statistics show that consumers continued to splurge on travel and eating out last November, helping push overall spending 11.4 per cent higher than it was a year earlier.

But the pace of growth had slowed after peaking at 29.2 per cent in August and more timely figures compiled by ANZ Banking Group indicate households became even more cautious heading into Christmas.

Nascent signs that households are reining in their spending is likely to be welcomed by the Reserve Bank of Australia, which has embarked upon one of the most aggressive monetary policy tightening cycles in its history as it seeks to drag inflation - which was growing at 6.9 per cent last October - back to within its 2 to 3 per cent target band.

Since last May the cash rate has increased by 300 percentage points to 3.1 per cent and Governor Philip Lowe has flagged the likelihood of more increases to come.

High interest rates formed part of the discussion Treasurer Jim Chalmers had yesterday with finance ministers from four other countries including US Treasury Secretary Janet Yellen, UK Chancellor of the Exchequer Jeremy Hunt, Canadian Finance Minister Chrystia Freeland and New Zealand Finance Minister Grant Robertson.

Dr Chalmers said the video conference was a valuable chance to discuss international economic conditions and opportunities for greater cooperation.

"We all realise this year is going to be a very tough one for our economies and the global economy more broadly," he said. "Insights gleaned from engagements like this one will assist as we continue to prepare for the May Budget."

ANZ senior economist Adelaide Timbrell said card and merchant transaction data sourced by the bank showed consumer spending between November 20 and December 18 - which includes the Black Friday sales - was only 10 per cent higher than during the same period in 2019 despite a 10.5 per cent increase in inflation and 1.8 per cent population growth since then.

"People were generally fairing really well until Black Friday. That is when we started to see some gaps in spending. Between Black Friday and Christmas we saw pretty lacklustre spending," Ms Timbrell said.

According to the ABS, during November households in the ACT were already pulling back on purchases.

During much of 2022, Canberrans were the nation's greatest spendthrifts. In September household expenditure in the ACT soared to be almost 70 per cent higher than a year earlier. By comparison, growth in second-placed Victoria was just 40 per cent.

But the rate of growth has since fallen sharply and by November had dropped to 8.2 per cent, the lowest of any state or territory.

Events like snap lockdowns and other restrictions during 2021 have contributed to the big swings in spending data, but the ABS figures show expenditure by Canberrans on discretionary items slowed significantly in November, especially furniture and household goods, sales of which were 23 per cent lower than a year earlier.

Ms Timbrell said the prospect of more interest rate rises - she expects the official cash rate to reach 3.85 per cent this year from the current 3.1 per cent - together with the looming shift of many mortgage holders from lower fixed to higher variable rates meant "there is going to be a lot more weakness [in household spending] to come".

Complicating the picture, data reported by the Australian Retailers Association (ARA) and Westpac DataX show Australians nonetheless splurged $1.23 billion on Boxing Day sales - a 15.3 per cent increase from the previous year.

The ARA said this expenditure came on top of $74.5 billion spent between the beginning of November and Christmas Eve, which was almost 8.6 per cent more than the same period in 2021.

But a significant chunk of these increases will have been driven by higher prices rather than bigger quantities of purchases, with inflation rising at an annual rate of 6.9 per cent in October.

Mr Zahra attributed sustained strong household spending during last year to low unemployment rate, wages growth and the savings many had accumulated during lockdowns.

"We saw 'freedom' spending during the all-important Christmas trading period, with shoppers relishing their new-found liberties and spoiling both themselves and their loved ones after three challenging years," he said, adding that, "it is clear that inflation and price increases also played a big factor in the overall sales number."

Mr Zahra agreed with Ms Timbrell that spending would moderate this year as household finances tighten and people prioritise essential purchases over discretionary spending.