CommBank Global Economic & Markets Update
Consumer Spending: Feeling the Impact of War
Why It Matters
Understanding the resilience and limits of Australian consumer spending is crucial for policymakers, businesses, and investors as inflationary pressures and geopolitical risks persist. The episode highlights how household buffers can temporarily cushion shocks, but rising rates and a softer labour market may soon translate into reduced demand, influencing economic growth and market performance.
Key Takeaways
- •2025 household spending grew 6.1% nominal, 2.5% real.
- •Iran war raised fuel prices, hurting consumer sentiment sharply.
- •Australian households maintain strong savings buffers above pre‑pandemic levels.
- •Unemployment expected to rise modestly to about 4.6%.
- •Weekly transaction data shows spending resilience, travel and dining soften.
Pulse Analysis
Australian household spending surged in 2025, expanding 6.1% in nominal terms and 2.5% real, powered by rising disposable incomes, tax cuts and three RBA rate cuts. The boom was especially visible in discretionary categories such as recreation, culture and health services. The sudden onset of the Iran war reversed that momentum, pushing oil prices higher and instantly inflating petrol and diesel costs. Even with a temporary fuel excise reduction, consumer sentiment plunged to near‑pandemic lows, and surveys show a sharp month‑on‑month decline in confidence.
Despite the shock, Australian families still hold solid buffers. The household savings ratio sits above pre‑pandemic levels, offset accounts now represent roughly 20% of income, and cash‑plus‑deposit holdings have risen to just under 110% of pre‑crisis norms. These cushions have historically allowed households to smooth income drops, though higher RBA rates could erode them over time. Unemployment is projected to climb modestly from 4.3% to about 4.6%, limiting wage growth and further pressuring discretionary spend. Meanwhile, AI‑driven productivity gains are expected to offset some job losses, but the transition remains uncertain.
The RBA’s tightening cycle aims to bring inflation back to the 2‑3% target band, even if it means a slight rise in joblessness. The recent budget’s 25‑cent fuel excise cut offers immediate relief, while broader reforms promise productivity gains that could expand the economic pie. ComBank’s weekly transaction data now tracks real‑time consumer behaviour, showing overall spending resilience but early softness in travel and dining out. These high‑frequency insights help policymakers and investors gauge whether households are dipping into buffers or simply pausing discretionary purchases, shaping the outlook for Australia’s post‑war consumer recovery.
Episode Description
Australia’s consumer spending has remained surprisingly resilient, but early signs suggest that may not last.
Host Mandy Drury speaks with CommBank Senior Economist Ashwin Clarke about how households are responding to rising cost pressures linked to the Middle East conflict. From higher petrol prices to broader cost-of-living impacts, they unpack how global shocks are filtering through to everyday spending and business activity.
Ashwin explains why household spending has held up so far, supported by savings buffers and a willingness to absorb short-term income shocks. But with sentiment deteriorating, real incomes under pressure and unemployment expected to rise, the outlook is becoming more uncertain.
Plus, CommBank’s Dr Hamid Yahyaei shares the key focuses for markets in the week ahead.
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