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According to the ABS' Monthly Household Spending Indicator, discretionary spending in October was down 2% from October '22.

This follows what Ross Ewing, ABS head of business statistics, says is a downward pattern throughout the last few months as households tighten non essential spending amid cost of living pressures and high rates.

"Less spending on discretionary services such as eating out, accommodation and recreation and cultural services all contributed to the slowdown," Mr Ewing said.

The Household Spending Indicator is in current price terms, not adjusted for inflation, so a 2% cutback is significant considering prices rose 4.9% in those 12 months, as per the monthly CPI inflation indicator.

This also reflects slower retail sales through the month, though the ABS says this could be a momentary lull as shoppers "pressed pause" in anticipation of Black Friday sales, which topped nearly $9 billion

In what many called a hawkish November speech, RBA governor Michele Bullock said inflation in Australia is now predominantly because of domestic demand, so the slowdown in spending will be welcome news for mortgage holders desperate for no more cash rate increases.

It looks increasingly unlikely the RBA will deliver a Christmas hike in the monetary policy meeting later today, but the February decision still looks very much live.

Steering this decision will likely be fourth quarter CPI inflation figures, which will be released on the last day of January and six days before the RBA monetary policy meeting.

Tuesday's spending release also showed non-discretionary spending rose 7% in the 12 months to October, with overall household spending up 2.7%.

This is still below the inflation rate, but particular growth in spending on transport (up 13.4% through the year) and health (up 10.8%) suggests many Aussies are still struggling with price increases to services.

Fuel was one of the major drivers of inflation in the September quarter, rising 7.2% over three months, while average annual inflation in the health sector rose 5.4% in the third quarter of 2023 compared to the same time in 2022.

Pessimism the leading indicator

Also released Tuesday was the weekly Roy Morgan-ANZ consumer confidence update, which shows Australians on the whole are not optimistic about the outlook for their finances.

The average expectation for price increases over the next two years is 5.6%, which given current RBA modelling is for inflation to moderate to about 3.5% by the end of next year, would likely make several more rate increases necessary.

More than a third (36%) of respondents expect their family to be worse off financially this time next year, compared to 32% who anticipate their situation will improve.

Only 8% of Aussies expect 'good times' for the Australian economy over the next 12 months, just over a fifth of those who are expecting 'bad times' (39%).

CommBank Chief Economist Gareth Aird thinks this pessimistic outlook might be being deliberately cultivated by Michele Bullock and the board, based on her recent hawkish rhetoric.

"We think that the Governor is trying to 'jawbone' to the housing sector to elicit a greater behavioural response to the November rate increase," he said.

Mortgage holders who are expecting inflation to stay high, and the cash rate to subsequently increase, might further curb spending in anticipation of rates going up.