FEAR & GREED | Business News Household spending and the cost of living crunch
Jan 1, 2026
Luci Ellis, Westpac's Chief Economist, dives into the vitality of household spending in the economy. She discusses the recent uptick in consumer spending and suggests we're past the peak of cost-of-living pressures, with inflation easing and real incomes recovering. Luci highlights the critical role of employment in supporting spending and explains how steady consumption is more reliable than volatile investments. Ultimately, she forecasts mid-2% growth in consumption if interest rates remain stable, painting a cautiously optimistic outlook.
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Consumers Regained Some Spending Power
- Consumers lifted spending through 2025 as incomes recovered in inflation-adjusted terms.
- Luci Ellis says people have more elbow room but remain value conscious due to cost pressures.
Value Conscious Consumers Face Utility Price Pressure
- Sentiment and spending remained choppy through 2025 with consumers highly value conscious.
- Government-driven cost increases like water and electricity continued to crimp budgets.
Consumption Is The Economy's Bedrock
- Consumption is the largest, most stable part of GDP because it represents everyday household activity.
- Luci Ellis notes consumption smooths more than investment, which swings with business confidence.