Rate rises, inflation fears see consumer stress spike

Cost of living pressures continue to weigh on Australian consumers with consumer stress associated with cost of living rising to a “multi-year high at 69.9 points” in the second quarter of 2023, according to the latest NAB Consumer Sentiment Survey.

“The recent run of activity data including NAB’s business survey clearly shows the economy is now slowing as consumer spending begins to stall, but inflation and wage data still show that price pressures remain elevated,” said the major bank.

“This was highlighted by the Q1 national accounts which saw GDP growth of just 0.2 per cent over the quarter and increasing signs of interest rates and inflation weighing on the consumer, while dwelling investment continued to fall.”

Cost of living stress is growing and is now trending at above average levels in all demographic groups in the survey.

High stress was more prevalent in the 30-49 age group at 36 per cent and lowest in the over 65 age group at 27 per cent.

“The highest number of consumers with extreme cost of living stress lived in a rented apartment or were divorced,” NAB stated in the sentiment survey.

Australian consumers were also asked about how cost of living and inflation will change over the next 3 and 12 months.

Overall, most expect little respite with 71 per cent anticipating higher costs in both the next 3 and 12 months.

Consumer spending sees slight uptick in May

Consumer spending, according to NAB’s transaction data, rose in May, but only partially reversed the fall over March and April.

NAB said the reversal in spending does not change its view that growth is softening.

“Consumer confidence typically is not well correlated with consumer spending but the gap between subjective pessimism and actual spending appears to be narrowing,” it stated.

Restaurants, entertainment and micro-treats the major spending cut areas

Consumers are becoming more discerning about where they spend their money and on what, according to the NAB survey.

“While there are few substitutes for essentials such as rent, utilities, and mortgages, shopping baskets are changing. Australians have become ‘considered consumers’ by prioritising things that they value perhaps a live concert, or their children’s education and making key savings elsewhere,” the sentiment survey said.

Over 1 in 2 (or 55 per cent) consumers reported cancelling or cutting back on eating out at restaurants in the second quarter.

Around 50 per cent cut back or stopped buying micro treats such as coffees, snacks, or lunches which was up from 45 per cent in the first quarter and entertainment, such as going to the cinema or theatre.

“The next most common adjustments were car journeys to save petrol (45 per cent up from 42 per cent), spending on travel (43 per cent), making more modest holiday plans (42 per cent up from 35 per cent), and on food delivery services such as Uber Eats (39 per cent up from 34 per cent),” the survey said.

Consumers were most reluctant to cancel or cut spending on private school fees/tutors with only 10 per cent of consumers making cuts in this area.

Consumer expectations in regard to major purchases in the next 12 months remain very pessimistic.

Overall, spending intentions are most conservative for major household items, followed by holidays, where intentions were considerably more negative in the second quarter.

“A significant number also plan to spend less on school fess, investment properties, other investments outside property and cars,” the survey said.

“Consumers with holiday intentions over the next 12 months were asked if they had made any changes to their travel plans due to their financial situation. Overall, around 1 in 4 (24 per cent) had cancelled all of their holiday plans (12 per cent an overseas holiday and 12 per cent a domestic holiday).

Over 4 in 10 (42 per cent) had postponed a holiday, but still planned to go at some stage (21 per cent overseas and 21 per cent domestic). In total, around 2 in 3 (65 per cent) Australian holiday makers either cancelled or postponed a holiday in Q2 2023.

Bulk of homeowners concerned about meeting repayments

Consumer research released by AMP has found seven out of 10 Australian mortgage holders are worried about meeting their mortgage repayments now and if interest rates continue to rise.

“Those aged between 25 and 44 are particularly feeling the pinch, with 80 per cent of this group worried further rate rises will lead to them not being able to make their repayments. For older Australians aged 65 years and over, 44 per cent said they are worried now and by the prospect of further rate increases,” AMP said.

The national research found that many of those mortgage holders classed as having a small safety net, a savings buffer of three or less months of their mortgage repayments, had not yet sought assistance from their lender.

Almost three quarters of those mortgage holders had not contacted their lender to ask for a more competitive rate or other support. Around four in ten said this was because they believed they’d be able to make ends meet, while 29 per cent hadn’t contacted their lender because they didn’t believe they could help them.

A report by Aussie Home Loans revealed similar findings indicating that 29 per cent of homeowners are struggling to make mortgage repayments.

The report also found that 13 per cent are concerned they will default on their home loan and that 11 per cent are using more than 70 per cent of their income to service their repayments.

“A sizeable portion of Australian homeowners are being forced to make difficult life alterations to afford their higher mortgage repayments,” said Lendi chief operating officer Sebastian Watkins.

The report reveals 37 per cent of homeowners are having to work longer hours or overtime because of the rate increases, while 22 per cent have taken on a second job.

More than 10 per cent have sold longer-term investments, 55 per cent have cut back on holidays and 60 per cent have reduced their grocery spend.

Half of respondents said they had stopped or reduced their contributions to savings, while a further 19 per cent have stopped or reduced their superannuation contributions.