Household spending jumped 1.3% in May, beating forecasts and reversing April's decline
Strong household spending has already played a role in this year's run of rate hikes, and May's surprise jump could complicate the case for any near-term rate relief, leaving the Reserve Bank with one more data point in favour of holding its line on borrowing costs.
The Household Spending Indicator, published by the Australian Bureau of Statistics, rose 1.3% month-on-month in May — more than double the 0.5% rise the market had priced in and well above Westpac's own forecast of 0.7%.
The scale of the miss carries weight given recent history: a comparable surprise in March, when spending posted its strongest annual gain since mid-2023, was cited directly by the Reserve Bank's Monetary Policy Board when it lifted the cash rate to 4.35% in May, with eight of nine board members voting for the hike.
May's spending figure fully reversed April's 1.1% fall, with annual growth accelerating to 5.5% from 5.1% previously. March's own figure was revised higher still, to 1.7% month-on-month, lifting the three-month growth rate to 1.7% on a quarterly basis from 1.1%.
The Board held the cash rate at 4.35% at its most recent meeting on June 16, a unanimous decision and the first hold of 2026 after three consecutive increases.
Westpac broke from the other major banks in its own rate call, forecasting two more 25-basis-point increases in August and September, even as Commonwealth Bank, NAB and ANZ expect the rate to stay at 4.35% through to 2027.
Westpac economists Luci Ellis and Neha Sharma have since conceded the risks sit toward fewer hikes than their base case allows for, "given the weaker outlook for the household sector."
The Bank's own reasoning for the June hold centred on the labour market rather than spending: Domain's chief residential economist, Nicola Powell, pointed to unemployment climbing to 4.5% and a fall in April employment as evidence that tighter policy is "gaining traction across the economy."
Whether the Bank's August statement keeps language warning it remains "well placed to respond to developments," or softens that guidance, will tell brokers whether a further hike is still the more likely next move. The next Monetary Policy Board meeting falls on August 10-11.
All nine spending categories tracked by the ABS posted gains in May, the first time in recent months every category moved in the same direction.
Services spending rose 2.6% and 5.1% annually, recovering from a 1.8% fall in April, while goods spending rose 0.1%, with annual growth of 5.9%. Discretionary spending climbed 2.1% in the month and 5.6% annually; non-discretionary spending fell 0.2% but remained up 5.2% over the year.
Clothing and footwear led category gains at 2.7%, linked by the ABS to base effects from April's sales events.
Miscellaneous goods and services rose 2.2%, hotels, cafes and restaurants 1.9%, and transport 1.4% as travel-related refunds normalised after April's spike from Middle East-linked flight cancellations; excluding air transport, total spending growth would have been 0.6%.
Food rose 1.1%, alcohol and tobacco 1.0%, furnishings and household equipment 0.8%, recreation and culture 0.8%, and health 0.2%.
April's decline, now fully unwound, had its own story: fuel spending fell 6.5% that month as the halving of the fuel excise cut costs by 32 cents a litre, even though fuel spending remained 25.4% above February levels. Discretionary spending's share of total spend had fallen 1.2% relative to February, concentrated in hotels, travel and transport — the same categories that rebounded hardest come May.
State results were broadly positive, with every jurisdiction except Tasmania recording a gain; Tasmania fell 0.5%. Western Australia posted the strongest result, rising 2.6% — its largest increase since 2022 — followed by Victoria (1.7%), South Australia (1.6%), Queensland (1.1%) and New South Wales (0.7%).
On a seasonally adjusted basis, the indicator stood at A$80.64bn in May, against a trend estimate of A$80.20bn, up 0.3% month-on-month and 5.1% annually.
Westpac's own outlook commentary points to caution rather than confidence, and recent survey data backs that up. The Westpac–Melbourne Institute Consumer Sentiment Index fell 2.9% to 80.6 in June, among the weakest readings in the survey's 50-year history, with Westpac's Matthew Hassan noting that a sentiment shock from April "eased off a touch in May but has intensified again in June."
For brokers, the lesson from March's surprise still holds: borrowers reading strong spending data as a sign of relief ahead may be reading the situation backwards.
As Connective's Mark Haron put it after May's hike, the resilience of the labour market alongside firm spending "is giving the RBA room to stay restrictive." Mortgage Choice reported fixed-rate portions of submissions climbing to 6% in April from 3% a year earlier, a sign some borrowers are already hedging against further moves rather than waiting for cuts.
