‘Another cost-of-living shock’: Australian households brace for more financial pain

Australian households are bracing for more financial pain in the coming months as soaring fuel prices coupled with higher-for-longer interest rates crunch budgets.

The Reserve Bank of Australia has already delivered two successive interest rate rises this year, with another hike highly expected next month.

A new Westpac-Melbourne Institute survey on Tuesday revealed consumers were being hit by another cost-of-living shock, with its index falling to 80.1 in April from 91.6 in March. An index above 100 means there are more optimists than pessimists.

Westpac head of Australian macro-forecasting Matthew Hassan said the spike in fuel prices following the onset of the US-Israel war on Iran and another 25 basis point hike in the cash rate — now at 4.1 per cent — were again putting finances under intense pressure.

Average pump prices hit $2.40 a litre in the first week of April, up 37¢ from the time of the March survey and 77¢ compared with early February.

Westpac’s survey was taken after the Federal Government’s temporary halving in fuel excise tax, which came into effect on April 1. The the 26¢/litre reduction contributing to a 12¢/litre decline in average pump prices in the first week of the month.

“Near-term expectations for the economy and family finances also deteriorated sharply, suggesting consumers see little prospect for improvement and are bracing for more difficulties,” Mr Hassan said.

Rate rise fears were also looking to be shaping consumers’ near term concerns.

“The wider inflation consequences of the global energy shock have yet to fully play out locally but clearly add to concerns that the RBA will need to increase interest rates again,” Mr Hassan said.

According to the survey, just over 80 per cent of consumers expect mortgage rates to increase over the next 12 months, with 40 per cent expecting a rise of over one percentage point.

Its mortgage rate expectations index, which tracks consumer expectations for variable mortgage rates over the next 12 months, rose 3.9 per cent to 177.2 in April, returning to recent highs.

A separate survey from National Australia Bank the same day revealed business confidence crashed in March, with falls of this magnitude previously only seen in the Global Financial Crisis and the onset of the COVID-19 pandemic.

Business conditions fell slightly, which NAB said reflected the fact that while the global news backdrop had impacted sentiment, it was still early in terms of the flow through to activity.

“However, it does highlight that the economy had carried a healthy level of momentum heading into the unfolding shock,” NAB economist Michael Hayes and head of Australian economics Gareth Spence said.

The decline in conditions was broad-based across industries and was biggest in transport and utilities, construction as well as retail, where direct impacts on costs and consumer demand are most obvious.

Conditions in WA and SA rose, while Vic recorded the biggest fall.