Rising living costs are causing people to cut back on borrowing, with private sector credit growing by just 0.6% in May, according to the Reserve Bank, and housing credit growing at the slowest rate in 16 years.

Private sector credit is effectively the amount of loans outstanding in the economy. If growth in lending is strong, then it suggests that credit from financial institutions is freely available, underlying demand for assets such as cars and houses is firm, and that the price of credit (interest rates) is attractive.

Savanth Sebastian, equities economist at Commonwealth Securities, said higher living costs and rate hikes have seen consumers clamp down on borrowing.

He added that owner-occupied housing is growing at the weakest rate in over eight years, while growth of investor housing remains near record lows.

"Rising living costs, decade-high interest rates and dwindling sharemarket returns are all taking a toll on consumer borrowing," Sebastian said.

"The household budget is facing increased expenses, and the weakness in the sharemarket hasn't helped in alleviating some of the household stress. Consumers are cutting back on borrowing with no room to move."

In general terms, credit is now growing by the slowest pace in 30 months, and the housing market shows no signs of recovering as investors are "staying away from the housing market in droves".

"We're just not building enough houses, and the strength in population growth is likely to see rents increase even further," Sebastian added.

"The rental crisis isn't going to go away any time soon, with investors staying away. Higher interest rates are having a detrimental effect on the property market ... [but] CommSec expects the residential property market to recover over the next 12 months."