Consumer Stress Up As Cost of Living Rises

Australia | Jun 24 2022

Index insights produced by the National Australia Bank have demonstrated an increase in consumer stress as the cost of living rises amid an inflationary environment.

-Consumer Stress Index increases for the second straight quarter but remains lower than last year
-Australians make changes to spending to alleviate cost of living pressures
-Consumers perceived the greatest cost increases in the grocery, transport and utility categories

By Danielle Austin

Insights show consumers are making changes to their spending and lifestyle habits in response to the rising cost of living, as the National Bank Consumer Stress Index has indicated an increase in consumer stress for the second consecutive quarter.

With consumer prices lifting 5.1% in the year up to the first quarter, the largest jump in the Consumer Price Index since 2001, the recent increase in consumer stress isn’t surprising but economists from NAB have highlighted sentiment remains better than the same time a year ago, attributing record low unemployment rates to helping Australian’s cope with concerns of the rapidly rising cost of living.

While consumer stress remains relatively low, with the second quarter seeing the Consumer Stress Index increase to 56.4 points, up from 55.7 points in the first quarter, but below both the 57.8 points reported a year ago and the Index average of 58.7 points, data shows consumers are already changing their behaviour as the cost to maintain their standard of living rises.

According to NAB’s insights, consumers have perceived increases in prices across a number of categories. Grocery, transport and utility costs were perceived by consumers to have increased most noticeably over the last three months, with 72% of consumers reporting an increase in grocery prices, 66% reporting an increase in transport costs and 59% reporting an increase in utility costs.

In addition, 41% of consumers noted an increase in their mortgage costs, while a sizeable number believed costs had increased for travel and holidays, dining out, entertainment, personal goods and major household items.

Consumers adapt spending and lifestyle to inflationary environment

Despite consumer stress remain relatively low, the bank acknowledged that some consumers will be feeling the impacts of the rising cost of living, but stressed that its average customer is well-positioned as the economic environment becomes more inflationary. The NAB economists noted there is a tendency for consumers to pay closer attention to their spending during economic downturns.

NAB’s research indicated lower income households have been quicker to adjust their spending habits, particularly when it comes to spending on entertainment, food, subscriptions and out-sourced home maintenance. Importantly, NAB indicated that the stress gap between the highest and lowest income earners widened to 8.9 points, after narrowing consistently over the last four quarters, highlighting the pressure facing lower income households.

NAB’s data suggests consumers are prioritising essentials and cutting back where possible, with one in two Australians switching to cheaper brands and shopping around for better deals. The economists suggest consumers are cutting back on, or cutting out, food delivery services, entertainment, subscriptions and gym, sports and club memberships.

The survey also showed consumers are undertaking a number of lifestyle changes, including cutting back on electricity use, reducing travel to cut petrol costs, cutting back on small treats such as coffees, snacks and lunches, keeping track of spending and following a budget, and delaying or downsizing holiday plans.

While NAB stressed its average customer remains well-positioned to weather the rising cost of living, with 70% of the bank’s customer base ahead of their mortgage payments, its data revealed 9% of respondents had deliberately missed a mortgage or rent repayment, 11% has missed a bill payment, and 12% had cut back mortgage repayments or drawn down loan equity.

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