Australian Bureau of Statistics (ABS) reported that the indicator was 0.7 percent lower when compared to July last year.
The overall drop in household spending was driven by furnishings and household equipment, clothing and footwear, and recreation and culture.
Fresh data from the ABS also showed that goods spending had its largest decline since July 2021 with a 4.1 percent fall, while spending on services rose 2.4 percent.
July also saw spending growth rates plunge in all states and territories compared to the previous month.
Robert Ewing, ABS head of business statistics, pointed out that households have curbed their spending over the past 12 months amid higher interest rates and inflation.
"Spending on discretionary goods and services was down for the fourth straight month. It fell 3.3 percent over the year, as households adapt to the cost of living pressures," said Ewing.
"Non-discretionary spending rose 1.7 percent, which is the lowest growth rate since early 2021," the expert added.
Since May 2022, the Reserve Bank of Australia (RBA) has delivered 12 rate hikes, bringing the cash rate target from 0.1 percent up to 4.1 percent.
With CPI currently sitting at 6 percent, the RBA remains "resolute" to achieve an inflation rate of 2-3 percent by further tightening its monetary policy.
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