It seems ironic but Australia’s largest bank has just released research showing that because they are raising interest rates their customers are spending less.

That’s right, the Commonwealth Bank’s Household Spending Intentions Index (HSI) has been released, and it tells us that our “spending intentions” fell 0.5% in the month from August to October, “as higher interest rates begin to take a toll.”

Of course, the CommBank are sheeting home the blame to the Reserve Bank, which is on a cycle of interest rate hikes. The central bank has raised rates six times this year, from the record low of 0.1% to 2.6%.

What the CommBank does not say is that once the RBA raises rates, so do they, and generally by more than the RBA does. The RBA’s cash rate is at 2.6%, while the CommBank variable rate is at 4.2%.

And to prove that the bank isn’t overly generous, their 12 month deposit rate is at 3.35%, meaning that if you put your money in their bank they’ll give you a lesser rate than what they charge you in interest if you have a mortgage with them.

Banks use saving deposits to fund their mortgage lending, and it’s not a complex sum to see that they are getting the better of that deal.

Mortgage repayment arrears are expected to worsen next year as rate hikes and soaring living costs bite.  So Mortgage stress is increasing. Thank goodness the low jobless rate means most of us have an income.

“While mortgage stress is inevitable for some borrowers in the current environment, low unemployment will temper the transition from arrears to default, particularly with rising wage growth,” S&P said this week.

Household spending does tell us a bit about ourselves and how we are coping with inflation and higher interest rates. This was the first time the HSI has declined this year since the RBA started raising rates, which means that the economic situation is starting to bite on many consumers.

September’s biggest declines came in the categories of health and fitness, home buying, household services and transport.

In a reversal from August, the health and fitness category declined by a sharp 11.2% in September, with fewer visits to doctors and dentists.

Home buying was also down 4.4% this month and 24.6% for the year, with increased interest rates slowing demand for home loans.

By contrast, motor vehicle spending rose 6% in September, following a strong 14 per cent gain in August. Spending on motor vehicles is now up 3.3% for the year, moving into positive territory for the first time since March.

So, while we are cutting back on health and fitness, and we are spending less on houses – perhaps because prices are falling – we are still feeling positive enough to go out and buy a new or second hand car.

Part of that might be that the supply chain issues which saw a shortage of new vehicles during the pandemic lockdowns has now eased, and the market is getting back close to normal.

The outlook for interest rates is for the RBA to continue to hike until mid-next year, which means that the CommBank will be raising its rates too, and probably telling us on a monthly basis how higher interest rates are impacting on our spending patterns.




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