Spending sees modest increase in March amid tariff threats: CBA

Interest rate cuts expected throughout 2025 could stimulate a stronger up-tick in consumer spending throughout the year, CBA predicted.

“We expect interest rate cuts over the coming year to see consumers loosen their purse strings, but global uncertainty from the U.S. tariffs may impact this recovery,” CBA Senior Economist Belinda Allen said.

“It’s worth noting Australia is well placed to weather the global economic volatility and remains in a structurally sound position with limited direct impacts from the US tariffs. At the same time, the RBA has room to cut rates if required.”

Household spending rose across all twelve categories recorded by the Commonwealth Bank (CBA), although the pace of spending growth remained lower than the final quarter of 2024, which was buoyed by sales promotions such as Black Friday and Cyber Monday.

While CBA predicted a recovery in consumer spending throughout 2025, bolstered by interest rate cuts, rising global uncertainty could weigh on consumer sentiment and dampen spending.

For example, consumer sentiment took a noticeable hit following US tariff announcements, which continue to stoke chaos and uncertainty in global markets. The gap between income and spending growth remained large in March, indicating a sense of caution among consumers, CBA said.

Climate events have also negatively impacted consumer spending. For example, March spending growth in Queensland was dampened by ex-tropical Cyclone Alfred.

“Queensland saw the softest growth rate in March, with spending rising just 0.1 per cent following ex-tropical cyclone Alfred," Allen said.

Insurance recorded its 24th consecutive monthly gain, rising by 1.6 per cent in March. The annual rate of increase on insurance spending was 15.3 per cent in March, driven largely by home, motor and health insurance, CBA said.

Insurers have warned that the heightened frequency of natural disasters has caused insurance premiums to rise, a trend which would worsen if action is not taken.

“The frequency and severity of natural disasters has increased in recent years and this is contributing to higher premiums,” the Insurance Council of Australia said in a release following ex-tropical Cyclone Alfred, which sparked at least 63,000 insurance claims.

Overall household spending was up 5.6 per cent over the 12 months to March, with the strongest growth concentrated in essential services such as insurance, education and health, CBA said.

By category, education spending rose by 4.3 per cent in March, boosted by rising tuition fees and the start of the academic year. Hospitality showed its first lift since December and rose by 1.2 per cent in March, and recreation spending rose by 1.4 per cent.

CBA said that spending growth observed across recreational sectors was encouraging, but it was too early to determine whether the economy had reached a turning point.

“While it’s encouraging to see a rebound in spending this March, particularly across discretionary categories like Recreation and Hospitality, it's premature to call this a turning point, as the overall pace of spending growth remains lower than the final quarter of 2024,” Allen said.