Australian household spending dips for the first time in 17 months as budgets tighten

Australian household spending fell in February for the first time in more than a year, signalling early signs that consumers may finally be pulling back after a long period of resilience.

The latest Commonwealth Bank Household Spending Insights (HSI) Index shows spending declined 0.5% in February, the first monthly fall since September 2024. Annual spending growth also slowed to 4.9%, the weakest pace recorded since August last year.

The shift follows 17 months of continuous spending growth and suggests cost-of-living pressure may finally be influencing household budgets.

“Spending has been remarkably resilient over the past year, supported by stronger household incomes,” Belinda Allen, head of Australian economics at Commonwealth Bank, said. “A decline after 17 months of growth is notable and suggests households may be starting to pull back.”

Allen said it was still too early to confirm whether February marks the beginning of a sustained slowdown, but said discretionary categories are beginning to lose momentum.

“That’s typically where households adjust first when budgets come under pressure,” she said.

Half of the twelve spending categories tracked in the index recorded declines during February. Utilities saw the sharpest monthly drop, falling 6.4%, while education spending declined 1.0% and is now down 4.0% over the year, the weakest annual result across all categories.

Recreation and transport spending also softened during the month, although recreation remains among the strongest performers over the past year.

Essential spending categories showed more resilience.

Health, household services, food and beverage goods, and communications and digital all recorded modest increases in February.

Discretionary spending begins to cool

The data suggests Australian households are beginning to tighten discretionary spending while maintaining spending on essential goods and services.

Spending on essential items rose slightly during February, while discretionary spending remained flat following stronger growth in January.

Over the year, discretionary spending growth slowed to 5.7%, down from 6.6%.

Allen said the trend mirrors broader economic data and reflects the growing pressure households face from inflation, energy costs and interest rates.

“We have been expecting consumption growth to moderate in 2026 as households contend with higher interest rates, persistent inflation and slower income growth,” she said.

“February’s data may be an early sign that this adjustment is underway.”

Mortgage holders still spending more

Households with mortgages continue to record the strongest spending growth.

Spending among mortgage holders grew 4.0% annually, compared with renters at 1.6% and households that own their homes outright at 0.8%.

Transport costs weighed on spending across all three groups, highlighting the impact of higher fuel prices and broader inflation pressures.

Education spending also diverged between segments, detracting significantly from renters and outright homeowners while contributing modestly to spending growth among mortgage holders.

What it means for the economy

The data will likely draw close attention from the Reserve Bank as policymakers assess whether higher interest rates are beginning to curb demand.

“The RBA has been looking for clearer evidence that demand is slowing,” Allen said.

“If we see further softness in spending over coming months, it would reinforce the case that monetary policy is working to moderate consumption and ease inflation pressures.”

While the decline may signal early shifts in consumer behaviour, Allen said rising energy prices remain a key risk for household budgets in 2026.

Early signs of consumer caution are also appearing in other sectors. Research from carsales suggests major purchases such as vehicles are taking longer to complete, with buyers increasingly pausing or revisiting earlier stages of the decision-making process as budgets tighten.