Retail activity slowing

The index fell 6.9 per cent from the previous month following the Christmas spending period — the first “normal” summer break since 2020.

Retail spending in the month of January fell by a large 21.3 per cent but was marginally higher when seasonally adjusted. Annual retail spending was up 5.9 per cent in the year to January, but with inflation running at 7.9 per cent over this period, it points to slowing activity in the retail space.

The index was lifted by a return to domestic and international travel that boosted the Travel Index by 8.2 per cent. Airlines received the biggest lift in December with modest gains in other travel sectors including cruises, caravan parks, and campgrounds.

However, spending on accommodation actually fell in the month.

January also saw entertainment spending fall 13.2 per cent in original terms and in line with usual seasonal falls after stronger spending on eating and drinking out in December but was marginally higher when seasonally adjusted — reflecting pent-up demand after two years of holiday breaks impacted by the pandemic.

Commonwealth Bank of Australia chief economist Stephen Halmarick said January’s CommBank HSI Index highlighted that Australians had made the most of the summer break following several years of COVID-19 impacts and natural disasters, while households were beginning to feel the pinch from rising interest rates and bills.

“Australians certainly took advantage of the first ‘normal’ summer break since the beginning of the pandemic to take a holiday and this helped support general levels of spending across the economy,” Mr Halmarick said.

“With the CBA predicting further interest rate hikes from the RBA in the coming months and a high volume of fixed rate home loans expiring over the next 12 months, household budgets are becoming increasingly constrained. We expect a slowdown in consumer spending in 2023 and downside risks are building for the Australian economy.”

CBA’s economics team is forecasting two further 25-bp interest rate increases in March and April 2023 to a peak cash rate of 3.85 per cent, following last week’s 25-bp hike to 3.35 per cent by the Reserve Bank of Australia.