Consumer demand is likely to remain subdued for the remainder of 2026, according to ANZ Economist Sophia Angala, despite recent data suggesting improving confidence and softer headline inflation.
The ANZ-Roy Morgan Consumer Confidence index has trended higher in recent weeks, following record lows earlier in 2026. In addition, data from the Australian Bureau of Statistics showed a rebound in household spending in May, while headline inflation growth slowed.
Angala told ANZ Institutional Insights that while the trend in confidence was higher, it remained relatively low, and a closer look at the spending data suggested overall demand was “waning”.
“We expect consumer demand to remain soft through 2026,” she said. “We expect household consumption to lift just 1.1 per cent this year. That's less than half the pace of growth that it saw for 2025, where it lifted 2.5 per cent.”
Some of the rise in spending in May was largely due to a lift in transport spending, Angala said, after a low result in April.
“When you actually look at the recent momentum of household spending, what we call the six-month annualised rate, that has come off after a strong end to 2025,” she said.
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Despite the softer headline inflation data, trimmed mean inflation — the Reserve Bank of Australia’s (RBA) preferred measure of underlying inflation — was stronger than expected. On a three-month annualised basis, the trimmed mean inflation pulse was at its strongest since September 2025, Angala said.
ANZ Research expects the RBA to keep rates on hold for the rest of 2026, although Angala suggested the risk of a hike was not trivial.
“We do know that there is still a risk of a rate hike over the near term,” she said. “The [second-quarter] inflation data that is due late July is going to be key for the RBA.”
Signs of a broader economic slowdown, including in spending and housing market activity, will also be watched closely, Angala said.
“Given the softer backdrop, this should mean that 4.35 per cent is likely going to be the peak of the cash rate,” she said.
That level should persist until the second half of 2027, according to ANZ Research.
“Given the ongoing economic slowdown, that softness in consumer spending and also the housing market slowdown as well, we have pencilled in two rate cuts by the RBA to come in in the second half of 2027,” Angala said. “That should see the cash rate end next year at 3.85 per cent.”
The next RBA meeting is scheduled for August 10 and 11.
