Consumer Spending May Stumble Later This Year


Retail sales hit a record high in May. But headwinds are building, and consumer sentiment data shows households are pessimistic.

The evolution of household spending is a critical uncertainty hanging over the economic outlook that is subject to ongoing debate amongst economists. There is a risk that spending loses momentum later this year as the cash rate moves higher, inflationary pressures remain elevated, and dwelling prices fall.

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Economic Insights - 1 July 2022

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The latest consumer sentiment data showed that the mood among households has become increasingly downbeat. Sentiment is now nearing levels seen during previous crises. What factors are weighing on confidence?
The RBA delivered a rate hike of 50 basis points today, taking the cash rate to 0.85%. It is the biggest move in 22 years. It follows a 25 basis point rate hike in May, which kicked off the RBA’s tightening cycle after headline inflation cracked 5.1% per annum in the March quarter.
It was a big week this week with the release of GDP data. This data revealed the economy flexed its muscles to grow solidly, despite an Omicron wave and weather disruptions during the March quarter. A consumer spending slash underscored the growth outcome in the quarter, so much so that the gain in consumer spending in the two quarters to the March quarter was the second fastest on record.


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