Australian household spending showed a modest rebound in January but the increase was insufficient to offset a fall in the previous month, official statistics released on Thursday showed.
The Australian Bureau of Statistics reported the monthly household spending indicator (MHSI) rose in January to A$78.98 billion. Economists had broadly expected a monthly gain of roughly 0.4% after spending contracted by 0.5% in December.
On an annual basis, the pace of spending growth eased to 4.6% in January, down from 5% in December and representing the slowest annual rate since May of last year.
"Following exceptional growth in Q4, consumers tightened their belts at the start of 2026," said Harry McAuley, economist for Oxford Economics Australia, adding that households prioritised essentials such as medical visits and vehicle servicing over retail shopping and travel. "We expect to see the impact of the latest rate hike beginning to flow through in the February and March MHSI prints."
The patchy consumer recovery helps explain why markets have largely expected the Reserve Bank of Australia (RBA) to hold its policy rate at 3.85% this month. The central bank increased rates in February, a move that reversed one of three cuts implemented last year amid a surge in inflation.
Broader economic indicators show mixed signals. The economy expanded by 0.8% in the last quarter, lifting annual growth to 2.6% - the strongest year-on-year pace in almost three years and above the estimated potential growth rate of 2%. However, that headline expansion obscured some softness in household spending.
Inflation remains elevated, with headline consumer price growth at 3.8%, above the RBA's target band of 2% to 3%, while the unemployment rate stayed low at 4.1%. Given these conditions, market pricing indicates a high probability of an additional rate increase in May.
The sector breakdown of January spending showed consumers cutting back on goods, where outlays fell 0.3%, notably reflecting weaker motor vehicle purchases. By contrast, spending on services rose 1%, supported by items such as digital streaming. Discretionary spending broadly was barely higher, up just 0.1% for the month.
Taken together, the figures portray a consumer sector that is cautious, reallocating spending toward essentials and services while trimming big-ticket goods purchases as interest rate considerations loom large.
Summary: Monthly household spending climbed to A$78.98 billion in January but the gain did not erase December's decline. Annual growth slowed to 4.6%. Consumers favoured essentials and services while pulling back on motor vehicles and other goods. Elevated inflation and low unemployment leave markets expecting further rate tightening by May.