People shop at Pitt Street Mall in Sydney, Australia, September 29, 2025. REUTERS/Hollie Adams

SYDNEY (Reuters) -Australian household spending edged higher in September as gains in food, health, and petrol were offset by drops in air travel and accommodation, suggesting only a patchy recovery in consumer demand.

Monday's data from the Australian Bureau of Statistics showed its monthly household spending indicator (MHSI) rose 0.2% in September, after a flat result in August.

The annual pace of spending growth picked up to 5.1% from 4.9%. However, in real terms, spending for the whole third quarter rose a modest 0.2%, slowing from a strong 0.9% gain in the June quarter.

That added less than 0.1 percentage point to economic growth in the third quarter, suggesting the much anticipated recovery in consumer spending is not guaranteed yet.

"We expect recent momentum to fade through the later months of the year. Real wage gains are easing and unemployment is rising," said Harry Murphy Cruise, head of economic research and global trade for Oxford Economics Australia.

"That combination is already dragging consumer confidence lower."

The bureau has noted that the numbers are being biased down by illegal sales of cigarettes and tobacco, which has subtracted around 0.2 percentage points per quarter from total household spending.

The Reserve Bank of Australia is widely expected to skip a cut in interest rates on Tuesday after inflation spiked, quashing hopes for more policy easing this year. Markets assume there will be just one more cut in the 3.6% cash rate, but not until May.

Home prices surged by the most in over two years in October, adding to household wealth to argue against more policy easing.

However, consumers are still cautious about spending and the labour market is losing steam, complicating the picture for policymakers as they juggle to keep the job market close to full employment and inflation low and stable.

The MHSI series has replaced the retail sales report to be the main gauge for household spending. It covers 68% of household consumption, including spending on many services.

Monday's report showed spending on services was unchanged in the month, while spending on goods such as food and petrol rose 0.4%.

(Reporting by Stella Qiu and Wayne Cole; Editing by Tom Hogue and Christian Schmollinger)