On Friday, the Australian Bureau of Statistics (ABS) released its Household Spending Indicator (HSI) for the month of May, which showed that households continue to cut back.

Overall household spending increased by only 0.1% over the year to May, down from 2.2% growth over the year to April.

Given CPI inflation of 4% in the year to May and population growth of more than 2%, this points to a real per capita decline in household spending of around 6%. This is similar to the real per capita decline in retail sales:

We call this the “jaws of death” for consumers as their living standards are eaten alive.

Household spending increased for services (+2.3%) and decreased for goods (-2.5%).

Spending also increased for non-discretionary items (+1.8%) and decreased for discretionary (-1.9%).

AMP Capital chief economist Shane Oliver noted on Twitter (X) that the further leg down in already negative real spending significantly weakens the case for another rate hike.

Meanwhile, the below chart from Justin Fabo at Antipodean Macro plots the ABS HSI against the national accounts’ measure of household consumption:

Clearly, consumer spending has weakened in Q2, pointing to a deepening of the already year-long per capita recession.

The Reserve Bank of Australia (RBA) would likely need to see both a Q2 trimmed mean CPI print above 1% and a firming of the labour market before electing to lift the official cash rate at its early August Monetary Policy Meeting.

My money remains on the RBA remaining on hold.