Australia's household spending fell 0.5% in February, the first drop since September 2024, with spending declining in half of all categories and annual growth slowing to its weakest rate since August 2025, according to the Commonwealth Bank of Australia's (ASX:CBA) Household Spending Insights report on Thursday.

Spending has remained resilient over the past year, supported by stronger household incomes, though the recent decline after 17 months of growth suggests households may be beginning to pull back, said Belinda Allen, head of Australian Economics at CommBank.

Utilities led the monthly fall, down 6.4%, with education also slipping 1%, while health, household services, food and beverages, and communications and digital rose modestly, the report said.

Essential spending rose slightly in February while discretionary spending remained flat after stronger January growth, with annual discretionary growth slowing to 5.7% from 6.6%, suggesting households are becoming more cautious due to cost-of-living pressures and higher interest rates.

Mortgage holders have the strongest spending growth, ahead of renters and outright owners, with education and transport costs contributing differently across groups.

The Reserve Bank of Australia is seeking clearer signs that demand is slowing, and continued weakness in spending would support the view that monetary policy is reducing consumption and helping ease inflation, Allen added.