The CommBank Household Spending Intentions (HSI) Index, which measures consumer sentiment based on card spending data and publicly available loan application and search trends, was released on Tuesday.
It showed a drop of 3.8 percent in April after reaching a record high in March. Australians were shown to be spending less on homes, health and fitness, and transport spending, but were spending more on travel entertainment and retail.
Commonwealth Bank of Australia senior economist, Belinda Allen, said despite the drop, the 2022 April index was still an improvement from April of 2021.
"With an interest rate hiking cycle now underway the Australian economy is in a strong position."
"We are seeing a post COVID normalization of consumer spending patterns, with lower spending on categories that increased during lockdowns," said Allen.
In the last several weeks Australia's central bank, the Reserve Bank of Australia (RBA), has been forced to lift interest rates for the first time in over a decade in response to headline inflation soaring past 5 percent.
In a recent interview with Xinhua, chief economist at financial advisory firm, KPMG Australia, Brendan Rynne said that this would help curb demand-side inflation.
"(As) homeowners start to contend with higher interest costs ... that's then going to also translate into lower consumption spending."
He added that this also means that Australian's real purchasing power would decline overtime as inflation outpaces stagnated wage growth.
The CBA immediately lifted their interest rates for customers following the RBA's 0.25 percentage points increase on the cash rate last week.
Allen from the CBA said the bank expects the cash rate to continue to be lifted through to February 2023, bringing the cash rate to 1.60 percent.
"Households have accrued a very high level of savings during COVID, the labor market remains tight and wages growth is accelerating. These factors will assist families with higher mortgage repayments over coming months."
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