Credit bureau illion’s credit stress benchmark improved in the second half of last year, as consumers adapted to changing economic conditions, but more recent spending and missed credit repayment data suggest people may be getting slacker with their household budget management.

illion’s Credit Stress Index fell in the six months to December, after peaking in July, but is still well above its level at the beginning of 2022, before the Reserve Bank started to tighten monetary policy.

The index is a measure of consumer credit default risk, based on credit repayment performance, including home loans, personal loans and credit card accounts; credit demand, including demand for different risk types, such as prime and sub-prime; and exposure to different types of credit products.

From a baseline of zero in January 2022, the index rose 14 per cent by July 2023 and then came back to 8 per cent above the baseline in December.

illion said the movement in the index suggests that Australian consumers have adapted to economic circumstances by spending less and may be better positioned to manager their financial risks.

But it’s not all good news. illion’s head of modelling Barrett Hasseldine said improvement in the index slowed in the month of December, indicating that the improvement in the index may have peaked.

Consumer spending on discretionary food and entertainment picked up in the December quarter, suggesting that consumers may be relaxing their budgets in response to moderating inflation data and a pause in interest rate increases.

At the same time, missed credit repayments rose 5 per cent in the December quarter.

Hasseldine said: “We don’t know for sure if there will be more rate rises or how long rates will need to stay high. Consumers are back to spending too quickly, which is a dangerous place to be, especially if they have been using credit to service this spending.”