Australian household spending rose 1.1 percent to A$82.34 billion in July, marking the third consecutive monthly gain and defying analyst expectations for a pullback, according to the Australian Bureau of Statistics.
The data immediately shifted market pricing for Reserve Bank of Australia policy. Futures now show a 47 percent probability of a rate hike in September, with a December increase fully priced in. Bond markets reacted sharply: Australian 3-year government bond futures fell 7 ticks as traders extended duration losses and repriced for higher rates ahead.
The RBA has raised its official cash rate three times this year to 4.35 percent, fully reversing 2025 easing. The central bank has signaled further tightening if inflation risks persist.
Spending on recreation and cultural activities jumped 1.5 percent, driven by higher gambling, major sporting events and increased cinema attendance. Clothing and footwear spending climbed 1.6 percent. Furnishing and household equipment rose 0.4 percent. Annual household spending growth accelerated to 7 percent in July, the highest year-over-year pace since June 2023.
Harry McAuley, economist at Oxford Economics Australia, said the strong spending growth combined with persistent underlying inflation will do little to improve sentiment at the RBA, pointing to demand-side price pressures.
The Australian dollar strengthened 0.2 percent to $0.7184 against the U.S. dollar, reflecting market expectations for tighter policy.
RBA policymakers are monitoring for a wealth effect where falling house prices could curb consumer spending. So far, consumption data shows no sharp slowdown despite elevated borrowing costs. Three of Australia's four largest banks have revised forecasts, now predicting a fourth rate hike this year after previously calling for the RBA to hold rates at 4.35 percent.
