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Soaring petrol prices and multiple interest rate hikes have delivered the biggest quarterly hit to household finances in more than two decades.
The spending power of families with a mortgage and two cars was slashed by an average of $450 per month in the March quarter this year, while non-essential funds available to a typical renter couple fell by $180 per month. Households that own their home outright were the least affected, with a drop in non-essential funds of $140 a month.
A report that tracks household finances by economic consultancy Polis Partners shows the first three months of 2026 saw the sharpest quarterly fall in discretionary household income since the series began in 2004.
During that period, the Reserve Bank lifted interest rates twice and petrol prices surged above $2.50 a litre following attacks by the US and Israel on Iran in late February.
That financial double blow erased almost all the recovery that the average household made to their budgets over 2024 and 2025, leaving them “back where they were 15 years ago in real terms”, the study said.
The Reserve Bank also lifted interest in May, but the effects of that decision were not included in the study.
Polis Partners director Rob Tyson said this year has shown how quickly household budgets can deteriorate when multiple cost pressures arrive at the same time.
“There’s been a big jump in what households have to devote to essentials and that leaves an awful lot less to spend on other things,” he said.
But the impact has been uneven.
“Housing circumstances, household composition and income all shape how exposed a family is,” Tyson said.
“A couple with a mortgage and two petrol cars they rely on to run the kids around and commute to work were really hit hard, whereas a self-funded retiree couple who have paid off the house and drive an EV have been largely insulated from the shock.”
The lowest 20 per cent of income earners have been disproportionately affected; for those households essential costs exceed income by about $81 a week on average, meaning they must draw on saving or use credit to make ends meet.
Households with middle and lower-middle incomes have seen a significant fall in the amount of discretionary funds available to spend.
But high-income households, especially those who own their homes outright, have been relatively insulated from the cost-of-living squeeze.
Over the whole year to March 2026, the amount the average household had to spend on non-essential items fell by $782.
Tyson warns there may be more pain in sight for Australian households.
“Unfortunately, the squeeze isn’t over,” he said.
“Pressure will continue into the June quarter as another interest rate rise has diminished any relief associated with halving the fuel excise tax. Continued uncertainty around fuel prices and future RBA decisions could plausibly see Australian household budgets deteriorate further through the year.”
Bowser prices peaked in early April before returning to more normal levels in May and June. However, fuel prices are rising again following renewed conflict in the Middle East.
The quarterly Household Report by Polis Partners draws on national income, expenditure and price data to track what Australian households have left for non-essential spending after essential living costs.
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