Australian Consumer Confidence Reaches 20-Month High

Australian Consumer Sentiment Reaches 20-Month High

Australian consumer sentiment rebounded to a 20-month high in February as a slowdown in inflation fuelled hopes interest rates had finally peaked and boosted spending intentions, a survey showed on Tuesday.

Index of Consumer Sentiment

The Westpac-Melbourne Institute index of consumer sentiment jumped 6.2% in February, from January when it fell 1.3%. The index reading of 86.0 showed pessimists still outnumbered optimists, much as it has for the past year or more.

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Political Partisanship in the Survey

Political partisanship was a notable feature of the survey as the confidence index among supporters of the Liberal National opposition slipped to 77.6, while that for supporters of the ruling Labor Party surged to 103.8.

Expert’s Perspective

“While sentiment is still firmly pessimistic there finally looks to be some light at the end of the tunnel for Australian consumers,” said Matthew Hassan, a senior economist at Westpac.

Factors Behind the Lift

“Moderating inflation and shifting expectations for interest rates appear to be the main factors behind the lift.”

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Impact on Interest Rates and Spending Intentions

Consumer price inflation slowed sharply to a two-year low of 4.1% in the December quarter, while the Reserve Bank of Australia (RBA) held rates at 4.35% at a policy meeting last week. The central bank did leave the door open to another hike if needed, but markets are wagering the next move will be down, albeit not until later in the year.

Consumer Expectations and Survey Results

• The survey found the proportion of consumers expecting mortgage rates to rise in the next 12 months dropped to 42%, from 52% in January and 61% in December.
• This had a big impact on the index measuring whether it was a good time to buy major household items which climbed 11.3% in February.
• The survey’s measure of family finances compared to a year earlier rose 4.9%, while the outlook for finances over the next 12 months gained 2.4%.
• The outlook for the economy for the year ahead jumped 8.8% and the outlook for the next five years firmed 4.4%.
• Consumers remained bullish on house prices with that index rising 2.1% to a new cycle high of 161.4.