Higher prices and rising interest rates are likely to dampen household spending, although new figures suggest consumers are preparing for one last hurrah.

The CommBank household spending intentions index made a partial recovery in May, rising by 2.9 per cent after falling in April due to public holidays in the month.

The index – which reflects CBA payments data, loan applications and publicly available search activity on Google Trends – increased across seven of 12 categories in May.

The gains included home buying, fitness & health and transport, alongside falls in entertainment, travel and insurance spending.

Increased home loan applications and housing searches on Google saw home buying spending intentions rise 14.8 per cent, which was still down 3.3 per cent from a year earlier and 13 per cent lower from the peak in March 2021.

“Higher prices and rising interest rates will impact household spending,” CBA senior economist Belinda Allen warned on Tuesday.

“We’re seeing early indicators of softness in CBA credit and debit card spending data, with discretionary spending on recreation, clothing & footwear and household furniture & equipment trending slightly down.”

CBA economists now expect the Reserve Bank of Australia’s cash rate to rise to 2.10 per cent by the end of 2022, from 0.85 per cent currently, after upwardly revising an earlier forecast of 1.60 per cent.

CBA also cut its economic growth forecast for 2022 to 3.5 per cent, from 4.7 per cent previously, and is predicting a 15 per cent drop in Australian house prices by the end of 2023.

Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)