Key Highlights

  • Household consumption grew 1.8 per cent over the year to the June quarter.
  • The RBA expects spending growth to slow further as prices and rates rise.
  • Falling home values are weighing on household wealth.
  • Weaker spending helps reduce Inflation but also slows growth.

Australians are still spending more than a year ago, but not by much. According to the economic conditions chapter of the Reserve Bank of Australia's (RBA) November 2026 Statement on Monetary Policy (SMP), household consumption rose 0.4 per cent in the June quarter and 1.8 per cent in year-ended terms.

The SMP identifies household consumption as a key drag on GDP growth, which has slowed. The Monetary Policy Board's 3 November statement summed up the broader picture in four words: "The economy is slowing."

The forecasts point lower still

The RBA does not expect household spending to rebound quickly. Its November forecasts have household consumption growth at 1.4 per cent over the year to December 2026, before picking up only gradually to 1.6 per cent by December 2028. The SMP notes the consumption outlook has been revised lower.

For a sense of scale, that means the RBA expects year-ended spending growth to be slower at the end of 2026 than the 1.8 per cent recorded in the year to June. These are RBA forecasts and may change as new data arrive.

Why households are holding back

Several forces in the SMP help explain the slowdown.

Squeezed real incomes. Real household Disposable Income growth, which measures income after tax and adjusted for inflation, is forecast to slow to 1.0 per cent by December 2026, and then run at about 1.3–1.5 per cent through 2028. When prices rise faster than incomes, households have less room to spend.

Persistent inflation. Headline CPI rose 3.9 per cent over the year to the September quarter and 4.3 per cent over the year to the month of September. The trimmed mean, an underlying measure, rose 3.7 per cent over the year to the September quarter. Governor Michele Bullock described the everyday effect when she spoke to the Senate Economics Legislation Committee on 28 October: "It means higher grocery costs, higher rent, and higher electricity bills." She added that "It makes everyone's pay packets and savings worth less".

Higher interest rates. The cash rate target has risen five times in 2026, by a total of 125 basis points, to 4.85 per cent. The Board's statement noted that "The increases in the cash rate target since the beginning of the year have tightened financial conditions."

Falling home values. The SMP says housing prices have fallen about 5 per cent from their March peak; national prices were 4.7 per cent below that peak in September. The Board's statement noted that "housing prices have fallen significantly". Established housing prices are falling faster than the RBA had expected.

One way to read the spending slowdown is through the saving rate. The RBA forecasts the household saving rate at 6.6 per cent in December 2026, easing to 6.0 per cent by December 2028.

Credit data offer another angle. The RBA's financial aggregates for September 2026 show:

  • Housing credit: up 0.4 per cent in the month and 7.0 per cent over the year.
  • Personal credit: up 0.3 per cent in the month and 4.8 per cent over the year.
  • Total credit: up 0.6 per cent in the month and 8.4 per cent over the year.

These are measures of borrowing growth, not spending, but they help round out the picture of household finances during a period of rising rates.

The RBA's October 2026 Financial Stability Review offered some reassurance about resilience. It found most borrowers are well placed for softer growth and lower housing prices, with most having positive Equity and large savings buffers.

Pulling back, but jobs still growing

A slowdown in spending does not mean the labour market has collapsed. The SMP notes that "employment growth held up in the September quarter as expected." The participation rate was 66.9 per cent in the September quarter, above RBA expectations, and the employment-to-population ratio was 63.8 per cent.

Unemployment has, however, risen more than the RBA anticipated, partly because more people are joining or staying in the labour force. The Unemployment rate was 4.7 per cent in September 2026 and averaged 4.6 per cent in the September quarter, above the 4.4 per cent the RBA forecast in August. The RBA expects unemployment to keep rising, to 4.9 per cent by December 2027 and 5.1 per cent by December 2028.

The Board's statement said: "Employment is expected to continue to grow, but the unemployment rate is projected to rise by more than expected in the August forecasts."

From the RBA's perspective, softer household Demand is part of how inflation returns to target. When spending growth slows, businesses face less pressure to raise prices. The SMP says inflation could fall faster than forecast if higher interest rates and falling housing prices weigh on spending.

There is also a risk on the other side. In the RBA's downside activity scenario, households and businesses respond more strongly to higher oil prices, interest rates and falling house prices. In that case, GDP would be about 1.0 per cent lower by end-2028 and unemployment 0.3 percentage points higher, with inflation only modestly lower.

Still, the Board judged that inflation pressures outweighed the slowdown for now. A majority of six members voted to lift the cash rate target to 4.85 per cent, citing "an increasing risk that higher inflation expectations will become embedded." Three voted to hold at 4.60 per cent; the statement does not set out their reasons.

The bottom line

Household consumption grew 1.8 per cent over the year to the June quarter, and the RBA expects that pace to slow to 1.4 per cent by December 2026. Real disposable income growth is forecast to slow to 1.0 per cent, inflation remains above the target band, and the cash rate has risen by 125 basis points this year.

The RBA sees weaker spending as both a drag on growth and a channel through which inflation eases. How far households pull back will be one of the key questions as new data arrive, including the next CPI release on 25 November 2026, ahead of the Board's 8 December decision.