Australians are opening their wallets, reinforcing the case for higher interest rates.
Household spending jumped 1%, month-over- month, to a record $79.35 billion in November, on a seasonally-adjusted basis, according to the Australian Bureau of Statistics' (ABS) Monthly Household Spending Indicator. That's an increase of 6.3% in the year.
The surge wasn’t confined to a single area: households spent more across almost the entire basket of goods and services, easily outpacing economists’ forecasts. That breadth matters, as it reveals the rise wasn’t simply a by-product of Black Friday discounts or early holiday shopping. Outlays on recreation and dining out were also notably strong, underscoring the resilience of discretionary spending.
"That [increase] would make the RBA a bit more nervous that inflation would be elevated for longer and so would force them to increase rates to kind of cool the economy a little bit," Ashwin Clarke, senior economist at Commonwealth Bank of Australia (CBA), told Australian Broker. "The faster the economy grows, the more likely it is to breach its speed limit, and may cause inflation to increase.
"We were expecting a 0.1% [rise], given that the October month was really strong," he continued. "And so when you put those two numbers together — the October and the November months — even if you get material decline in December, it’s still going to get some pretty strong household consumption in the December quarter."
Confidence is keeping pace too, with consumers feeling noticeably more upbeat in early January. Consumer confidence climbed 3 points the second week of January, according to the ANZ-Roy Morgan Australian Consumer Confidence report. Taken together, the breadth of spending and improving sentiment are clear signs that inflation pressures are set to build — sharpening the case for future interest rate hikes from the Reserve Bank of Australia (RBA).
CBA is anticipating a 25 basis point increase at the RBA's upcoming February meeting.
"We're still expecting the [December] quarterly trimmed mean inflation, the underlying inflation in the economy, to print fairly strong at 0.9%," Clarke said. "We also think that the economy is this strong; it's in a good place. Households, their balance sheets are really strong. We've had fairly strong consumer spending growth over the year to the September quarter. That does provide conditions under which businesses can increase prices. Whereas previously, when spending growth was a lot weaker, it was a lot harder for businesses to raise prices. They were scared that it would, sort of, scare away demand. That strong consumer spending, it's kind of a necessary condition for inflation to stay elevated and the RBA will need to cool that a little bit to get inflation back in the band."
RBA Governor Michele Bullock has said in the past that increased consumer spending could lead to delays in interest rate cuts — or possible hikes.
"For some time we have been predicting that the Australian consumer will start to spend a bit more, and they are – slowly,” Bullock said in September. "We are seeing it come back, and that’s welcome. That’s good. But it does mean that it’s possible that if it keeps going, then there may not be any interest rate declines yet to come."
The RBA slashed rates three times in 2025 — in February, May and August — bridging the official cash rate down to 3.6%. The lower interest rates ignited market momentum and a wave of FOMO among both current mortgage holders hoping to upgrade and would-be homeowners excited about entering the property market. But the central bank hit pause at the two subsequent meetings, pointing to stubborn underlying inflation as the reason for holding steady.
The RBA has also remained firm in its commitment to its 2% to 3% inflation target, and has repeatedly signaled that rates will not be reduced until inflation is securely back within that band. While inflation eased slightly in the latest monthly consumer price index (CPI) reading, most market participants — including Australia’s Big Four banks — do not expect the central bank to lower rates at its February meeting.
The RBA's next meeting on monetary policy is on 2 and 3 of February.
