SYDNEY, Aug 27 (Reuters) - Australian household spending rose for a third straight month in July as consumers splurged on recreation, food and health, data showed on Thursday, suggesting demand was holding up in the face of higher borrowing costs.
The solid reading added to a hot inflation report that had market participants betting that a rate hike from the Reserve Bank of Australia next month is now nearly a coin toss at 47% probability, with a move by December fully priced in.
The Australian dollar
rose 0.2% to $0.7184, while 3-year government bond futures extended earlier falls to be down 7 ticks.
"The ongoing strength in household spending will be cause for concern for the RBA," said Harry McAuley, an economist with Oxford Economics Australia. "Today's strong spending growth and yesterday's stubborn underlying inflation print will do very little to improve the mood."
Data from the Australian Bureau of Statistics showed its monthly household spending indicator (MHSI) rose 1.1% in July to A$82.34 billion ($59.13 billion). Analysts had expected a pullback after a solid 1% increase in June.
The annual pace of spending growth picked up to 7% in July, the highest since June 2023.
The RBA has raised interest rates three times this year to 4.35% to fight inflation, fully reversing the amount of policy easing it made in 2025. It also warned of even higher rates if inflation risks materialise.
Higher interest rates are cooling the housing market as policymakers monitor whether falling house prices could curb consumer spending through the so-called wealth effect, but so far there have been no signs of a sharp slowdown in consumption.
Three of Australia's four major banks are now forecasting a fourth rate hike from the RBA this year, abandoning their previous call for rates remaining on hold at 4.35%.
Thursday's data showed recreation and cultural spending rose 1.5% in July, boosted by increased gambling activities, major sporting events and cinema attendance.
Spending on clothing and footwear rose 1.6%, while furnishing and household equipment registered a small 0.4% increase.
(Reporting by Stella Qiu; Editing by Muralikumar Anantharaman and Thomas Derpinghaus)
