Australia's Household Spending Defies Higher Rates, Boosts Rate Hike Odds

Australia's household spending continued its solid run in July, rising for the third consecutive month. The latest data from the Australian Bureau of Statistics shows that consumers splurged on recreation, food, and health, suggesting demand remains strong despite higher borrowing costs.

The monthly household spending indicator (MHSI) rose 1.1% to A$82.34 billion ($59.13 billion), beating analysts' expectations for a pullback after June's solid 1% increase. The annual pace of spending growth accelerated to 7%, the highest since June 2023.

The Reserve Bank of Australia (RBA) has raised interest rates three times this year to 4.35% to combat inflation, and policymakers are now closely monitoring consumer spending. Higher interest rates have cooled the housing market, but so far, there have been no signs of a sharp slowdown in consumption.

The data adds to a hot inflation report that has market participants betting on a rate hike from the RBA next month, with a 47% probability and a move by December fully priced in. The Australian dollar rose 0.2% to $0.7184 after the release of the data.