Why cautious Aussies are still not spending

Perth Now

15-05-2025

An extended holiday period on the back of Easter and Anzac Day falling in consecutive weeks helped lift consumer spending in April but not by as much as experts expected on the back of falling interest rates.
In a welcome boost for retailers, the Commonwealth Bank Household Spending Insights Index rose by 0.2 per cent in April, on the back of a weak March quarter, driven by a lift in hospitality, recreation, household goods and food beverage.
But even with the lift, Commonwealth Bank senior economist Belinda Allen told NewsWire that spending in the month remained a 'mixed bag' and was 'underwhelming'. Huge crowds of young punters celebrating Anzac Day barely lifted consumer spending. NewsWire / Simon Bullard. Credit: News Corp Australia
'I think it's going to take time for the interest rate cuts to really see consumers boost spending further,' she said.
Australians' consumer confidence remained low, Ms Allen said, leading to less economic activity.
'Households are continuing to save at a higher level than you would expect given the improvements in inflation, the income tax cuts and lower interest rates,' she said.
'I think it's pretty evident there's still a bit of caution out there and certainly a lot of the global news wouldn't help either.'
Ms Allen said it could take multiple rate cuts for sentiment to improve, citing the spending data as another reason to slash the official cash rate on May 20.
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'We do think it will take further interest rate cuts to see a further lift in momentum in consumer spending this year,' she said.
Ms Allen also pointed to Wednesday's wage price index, which showed wages were up 3.4 per cent compared with headline inflation at 2.4 per cent, as a reason for households spending more in the month of April.
'It really comes down to sentiment,' she said.
'Even though we've still got a relatively tight labour market, inflation is coming down. It does look like households are still particularly cautious. However, a boost in money spent in hospitality helped lift consumer spending. NewsWire / Simon Bullard. Credit: News Corp Australia
'If you look at sentiment surveys that also came out on Wednesday, [Australians] are still more pessimistic than optimistic and that is being reflected in consumer decisions around how much they will spend and what they will spend it on.'
Treasurer Jim Chalmers and new Employment Minister Amanda Rishworth welcomed the rise in wages, saying annual real wages had grown for 18 months in a row 'under the Albanese Labor government'.
'Under Labor, more Australians are working, earning more and keeping more of what they earn,' they said in a statement.
'We're really pleased with today's figures which show annual real wages have now grown for six quarters in a row after going badly backwards under the previous Liberal government and falling for the five quarters in the lead-up to the 2022 election.
The Commonwealth Bank said April should have been a strong month for spending, as it featured the Easter‑Anzac Day 'super holiday', the lead-up to the federal election and a post‑Cyclone Alfred rebound, although it was marred by US President Donald Trump's tariff announcements.
Comparing March and April 2025 with last year to remove the Easter impact, annual growth is still 5 per cent stronger.
The biggest rise in consumer spending was insurance, up 1.6 per cent, followed by hospitality, up 1.4 per cent, communications digital, which grew 0.7 per cent, health, which jumped 0.4 per cent, and household goods and food beverage, both up 0.1 per cent.
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In good news for households' budgets, the biggest falls were in utilities, down 2 per cent, while electricity and gas costs also fell on the back of government subsidies.
According to the Commonwealth Bank, the biggest cohort of households lifting spending was renters, with older Aussies who own their home outright accounting for the smallest uplift in spending.
'Generally, when we think about it, renters are younger, so they're the ones that are going to be out more in April, given we had kind of that public holiday effect of Easter through to Anzac Day,' Ms Allen said.
'I think the renter story was very much an age group story in particular categories and that may well retreat in the next month.
'In contrast, it's probably why owners outright fell as well, as they are less likely to be out at the pub on Anzac Day compared to renters.'