Australians kept spending in July. The Australian Bureau of Statistics Monthly Household Spending Indicator, released on 27 August 2026, rose 1.1% in the month and was 7.0% higher than a year earlier, the strongest annual pace since June 2023. It was the third monthly rise in a row. That resilience is welcome for the economy, but it carries a quiet message for anyone planning to borrow, because spending, inflation and interest rates are all links in the same chain.
What the July spending figures show
The 1.1% monthly rise was broad. Tom Lay, the ABS head of business statistics, said it was the third consecutive monthly rise in household spending, led by recreation and culture, food, hotels, cafes and restaurants, and health. In fact all nine spending categories rose in the month.
The largest monthly increases came in clothing and footwear, up 1.6%, recreation and culture, up 1.5%, and miscellaneous goods and services, up 1.3%. Spending on services rose 1.5% for the month while goods rose 0.7%, so households are still leaning into experiences and out of home activity.
The rise was widespread across the country as well. The Northern Territory led with a 2.2% increase, helped by a 10.9% jump in health spending, while Western Australia rose 1.5% and Victoria rose 1.3%. When spending lifts in most categories and most states at once, it is harder to read as a one off, and easier to read as an economy with genuine momentum behind it.
Discretionary spending is the surprise
The split between essential and optional spending is where the number gets interesting. Non-discretionary spending, the bills you cannot really avoid, rose 1.1% in the month and 5.6% over the year. Discretionary spending, the optional part, rose 1.0% in the month but a much larger 7.8% over the year.
When households are still increasing optional spending at close to 8% a year, it suggests many budgets are not as stretched as headline cost of living talk implies. That is exactly the sort of signal the Reserve Bank watches closely, because discretionary spending is one of the first things to soften when households genuinely pull back. Its strength here points the other way.
Why rising spending matters for interest rates
Consumer spending is one of the main channels through which inflation stays alive. If households keep spending freely, businesses have room to keep lifting prices, and inflation is slower to fall back inside the Reserve Bank target band of 2 to 3%.
Inflation is easing but not beaten. The ABS monthly Consumer Price Index indicator was 3.5% in the year to July, down from 3.8% in June, still above target. The cash rate sits at 4.35% after three increases during 2026, and the Reserve Bank next meets on 29 September. Strong spending data is the kind of input that keeps the board cautious about easing and keeps the risk skewed toward rates staying higher for longer rather than falling soon.
What it means for your borrowing power
For borrowers, the practical takeaway is not to bank on rate cuts. Borrowing power, the maximum a lender believes you can repay, is calculated using an assessment rate that sits above the actual rate. While the cash rate holds around current levels, that assessment rate holds too, and the loan a given income supports does not suddenly get bigger.
If you are weighing up a purchase, it is safer to plan around today's rates than a hoped for cut. Our calculators let you test a repayment at a realistic rate so you can see what fits your budget now, and our car loan rates page shows the range lenders are quoting.
It also pays to build in a little headroom. If you can comfortably meet a repayment that is set a step above the advertised rate, you are already treating your own budget the way a lender treats it, and you are protected if rates hold higher for longer than expected. A repayment that only works if a cut arrives is a fragile one.
Your own spending is part of the assessment
There is a second, more personal link. When you apply for finance, a lender does not just look at your income, it looks at how you spend. Recent bank statements, regular subscriptions, buy now pay later commitments and everyday habits all feed the serviceability assessment.
Strong national spending does not change your application, but it is a useful reminder that lenders read spending carefully. For a fuller look at how declared and observed living costs are treated, our guide on household expenses and your loan application covers what lenders check and where the benchmark can differ from your real life.
Steps that help before you apply
A few steps put you in a stronger position while rates hold:
- Plan repayments around current rates, not a forecast cut, using a calculator.
- Tidy up recurring optional spending for a couple of months before applying, since it is visible on your statements.
- Keep short term debts low, because each one reduces borrowing power.
- If an existing loan is costing you more than it should, check whether refinancing improves your monthly position.
You can also compare what different lenders weigh most heavily on our lenders page. The July spending figures show an economy with more momentum than the cost of living headlines suggest, and for borrowers that momentum is a reason to plan carefully rather than count on cheaper money arriving soon.
