Australia's household spending rose 0.5% in January, driven by spending on recreation and necessities like summer events, fitness, and travel, according to the Commonwealth Bank of Australia's (ASX:CBA) Household Spending Insights report on Friday.

Utilities also saw the largest monthly increase across categories, due to higher electricity and gas bills, the report said.

However, rising interest rates, easing income growth, coupled with "tight" labor market conditions that still contribute to inflation, are likely to weigh on consumer spending over time.

"Households have been supported by a solid labor market and healthy balance sheets, but higher interest rates and easing wage growth are expected to slow spending as the year progresses," the Bank's Senior Economist Ashwin Clarke said.