An increasing number of parcels are also heading to regional and rural areas, fuelled by population growth since the COVID-19 pandemic began, according to Australia Post's online shopping report.

There was an 18 per increase in online shopping activity in remote and regional Australia between 2019 and 2023.

Baby boomers increased their spending online by seven per cent in 2023, compared to the previous year, splurging almost $1 billion extra with an average purchase of $109.

But despite cutting back during the year, millennials still spend the most, paying more than $22 billion for online purchases.

Generation-Z shoppers pared back their shopping more than any other cohort amid soaring inflation, shedding 11 per cent of their online spending compared to 2022.

There was a slight increase in spending among Gen-Xers, who spent a combined $17.5 billion online.

The average spend across all cohorts fell to $98, but the number of overall purchases increased as people made smaller, more frequent buys.

Retailers were also hit by increased supply-chain costs, which led to 43 per cent raising their free-shipping thresholds and some shifting costs of returning purchases to the customer.

Australian consumers were becoming more reliant on online shopping with eight out of 10 households making an online purchase in 2023, Australia Post e-commerce manager Gary Starr said on Monday.

Increasingly popular end-of-year sales events led to nearly 100 million parcels being delivered in November and December alone.

"The success of sales events like Black Friday and Cyber Monday ultimately contributed to Australia Post achieving its biggest e-commerce peak period ever," Mr Starr said.

Communications Minister Michelle Rowland said Australia Post played a significant role in enabling e-commerce and it needed to modernise in order to deliver more parcels.

A next-day delivery service operating in Melbourne, Sydney, Brisbane and the Gold Coast is expected to be expanded following strong uptake as part of broader plans to modernise, Australia Post chief executive Paul Graham said.

The Commonwealth-owned postal service has flagged a need to shrink its retail network as it continues to suffer losses in its letters business, offset by record parcel deliveries.

The cost of sending letters will soon become more expensive under a proposed price increase, which the consumer watchdog announced it would not oppose.

Sending ordinary, small letters will jump in price to $1.50 under the 25 per cent increase beginning in April, but concession stamps will remain at 60 cents each for eligible people.

While not opposing the increase, the Australian Competition and Consumer Commission recommended improvements to Australia Post's financial modelling for future price rises.

"Our recommendations seek to improve how Australia Post incurs and accounts for the costs of its reserved letter services, so consumers are not paying more for stamps than they should," commissioner Anna Brakey said.

Australian Associated Press