May Spending Surge Dims Hopes of RBA Rate Cuts in 2026

The ABS Household Spending Indicator jumped 1.3% in May, more than double forecasts, keeping further rate rises firmly on the table.

Borrowers hoping for rate relief before the end of 2026 received fresh bad news this week. The Australian Bureau of Statistics Household Spending Indicator rose 1.3% month-on-month in May — more than double the 0.5% rise the market had priced in, and well above Westpac's own forecast of 0.7%.

The scale of the miss carries real weight given recent history. A comparable surprise in March — when spending posted its strongest annual gain since mid-2023 — was cited directly by the Reserve Bank's Monetary Policy Board when it lifted the cash rate to 4.35% in May, with eight of nine board members voting for the hike. The Board held the cash rate at 4.35% at its most recent meeting on 16 June, a unanimous decision and the first hold of 2026 after three consecutive increases. The next Monetary Policy Board meeting falls on 10-11 August.

What the May Data Shows

[MPA Australia](https://www.mpamag.com/au/news/general/household-spending-jumps-past-forecasts-ahead-of-rbas-next-call/580519) reports that May's spending figure fully reversed April's 1.1% fall, with annual growth accelerating to 5.5% from 5.1% previously. March's own figure was revised higher still, to 1.7% month-on-month, lifting the three-month growth rate to 1.7% on a quarterly basis from 1.1%. On a seasonally adjusted basis, the indicator stood at A$80.64 billion in May, against a trend estimate of A$80.20 billion, up 0.3% month-on-month and 5.1% annually.

All nine spending categories tracked by the ABS posted gains in May — the first time in recent months every category moved in the same direction. Services spending rose 2.6% in the month and 5.1% annually, recovering from a 1.8% fall in April. Discretionary spending climbed 2.1% in the month and 5.6% annually, while goods spending rose 0.1% with annual growth of 5.9%. Clothing and footwear led category gains at 2.7%, followed by miscellaneous goods and services at 2.2%, hotels, cafes and restaurants at 1.9%, and transport at 1.4%.

Every state except Tasmania recorded a gain. Western Australia posted the strongest result at 2.6% — its largest increase since 2022 — followed by Victoria at 1.7%, South Australia at 1.6%, Queensland at 1.1% and New South Wales at 0.7%.

April's 1.1% decline — now fully reversed — had a specific driver: fuel spending fell 6.5% that month as the halving of the fuel excise cut costs by 32 cents a litre. The same discretionary categories — hotels, travel and transport — rebounded hardest in May.

What This Means for the August RBA Decision

The major banks are divided on the path ahead. Westpac is forecasting two more 25-basis-point increases in August and September, even as Commonwealth Bank, NAB and ANZ expect the cash rate to remain at 4.35% through to 2027. Westpac economists Luci Ellis and Neha Sharma have since conceded the risks sit toward fewer hikes than their base case, "given the weaker outlook for the household sector."

The RBA's reasoning for the June hold centred on the labour market rather than spending. Domain's chief of research and economics, Dr Nicola Powell, pointed to unemployment climbing to 4.5% and a fall in April employment as evidence that tighter policy is "gaining traction across the economy." Whether the Board prioritises the strong May spending data or the deteriorating employment picture when it meets on 10-11 August is genuinely uncertain.

Consumer confidence adds a further complication. The Westpac-Melbourne Institute Consumer Sentiment Index fell 2.9% to 80.6 in June, among the weakest readings in the survey's 50-year history, with Westpac's Matthew Hassan noting that a sentiment shock from April "eased off a touch in May but has intensified again in June."

As Connective's Mark Haron put it after May's cash rate hike, the resilience of the labour market alongside firm spending "is giving the RBA room to stay restrictive." Friday's numbers do nothing to weaken that assessment.

Some borrowers are already hedging. Mortgage Choice reported fixed-rate portions of submissions climbing to 6% in April from 3% a year earlier — a sign that part of the market is locking in now rather than waiting for cuts that may be further away than expected.

What to Do Before 10-11 August

If you are on a variable rate and have not reviewed your position since the rate cycle began, the August meeting is a real deadline. A further 25-basis-point increase would take the cash rate to 4.60%, compounding the effect of three increases already delivered in 2026.

Start by checking where you sit against [the cheapest home loans currently available](/home-loans/cheapest) to understand whether you are paying more than you need to. Use the [repayment calculator](/calculators/repayment) to model what another rate move does to your monthly commitment — before the meeting, not after.

If you have not refinanced in the past two years, the gap between what loyal variable-rate borrowers pay and what is available to new customers right now can be material. The [refinance options](/home-loans/refinance) on the market today may give you a meaningful buffer against further rate rises, and the time to act is before an August decision forces another round of lender adjustments.

The spending data is telling the Reserve Bank the economy has not yet blinked. Until it does, waiting on rate relief is not a strategy.