Not surprisingly, nominal spending on both discretionary goods and services has slowed in recent years, although growth in goods has slowed more sharply. This supports the argument consumers are switching their spending in favour of experiences.
The weakness in the value of discretionary goods consumption reflects weak inflation in the sector more so than weak demand.
Traditional retailers’ pricing power has been heavily impacted by the emergence of both internet shopping and the entry of foreign retailers into Australia. In contrast, services are generally not tradable or exposed to the same degree of competition as goods.
Based on the HFCE data, the sharpest price increases are for non-discretionary items such as electricity, education and food but when looking at discretionary items the comparison between goods and services is stark.
Prices for discretionary services are up on an annual basis – rising 3.1 per cent for recreation and culture and 0.7 per cent for hotels, cafés and restaurants in the first quarter.
In contrast, prices for clothing and footwear have fallen by 1.1 per cent, with an even sharper 2.2 per cent fall for furnishings and household equipment. For the record, CPI data shows the same trends.