Australia’s household spending rose 0.3% in January, missing forecasts of 0.4% growth but marking a rebound after December’s unexpected decline. The Australian Bureau of Statistics (ABS) reported consumption growth driven by services, with spending up 4.6% year-on-year. Tom Lay, ABS head, noted five of nine spending categories advanced, signaling cautious optimism amid economic uncertainty.

The rebound occurs as the Reserve Bank of Australia (RBA) faces pressure to raise rates again, with officials calling a hike a “live possibility.” February marked the first developed-world central bank tightening in 2026, targeting inflation via a 4.1% cash rate target. GDP data revealed softer-than-expected 0.3% growth in the December quarter, complicating the RBA’s path.

Household savings ratios hit their highest level since 2022, reflecting consumer caution. Unit labor costs eased for a second quarter, easing inflationary pressures. These trends highlight a tight labor market and persistent price pressures, critical for RBA policy decisions.

Markets expect at least one more rate hike this year, with implications for mortgage rates and consumer spending. The data underscores Australia’s economic resilience but signals ongoing challenges balancing growth and inflation control.