Rates could be cut in months after ‘soft’ household spending

The Commonwealth Bank has called for the RBA to cut interest rates in September after it found household spending remained soft last month.

CBA's household spending insights (HSI) index, which uses transaction data from 7 million of the bank's customers, rose by just 0.2 per cent for March, it announced today.

That leaves it lower than November levels despite a boost brought about by the Easter long weekend.

"Much of the spending lift in March can be attributed to the earlier-than-usual Easter holidays with people travelling and entertaining at home," CBA's chief economist Stephen Halmarick said.

"Beyond food and beverage and transport, gains in other categories were modest, and another fall in spending on household goods suggests consumers are prioritising spending on essentials."

Higher petrol prices sparked a 7.4 per cent monthly increase in spending at service stations, while there was a notable 6.8 per cent fall in recreation spending following a boost to that category in February due largely to Taylor Swift's Australian tour.

Halmarick said the soft spending adds to the case for the Reserve Bank to begin cutting interest rates in September.

"The annual rate of increase of the HSI Index is steady at 3.4 per cent, which is close to flat in real terms when an inflation rate of 3.5-4 per cent is taken into account," he said.

"Since the November RBA interest rate rise we've seen consistently soft household spending and we retain our view that, when coupled with decelerating inflation, the RBA can start lowering the official interest rate in September this year."

The RBA didn't consider dropping rates at its latest meeting last month, but also didn't put an increase on the table.

Governor Michele Bullock has given little indication about when rates are likely to start easing, saying the bank isn't "ruling anything in or out".