Australian consumers still down in the dumps despite lower fuel prices: Westpac

Australian consumers are still very much down in the dumps despite lower fuel prices at the pump.

A new Westpac-Melbourne Institute survey on Tuesday said the temporary halving of the fuel excise had helped to reduce average pump prices by nearly 30¢ a litre since April, but this would have been largely offset by another interest rate hike at the start of the month.

Westpac head of Australian macro-forecasting Matthew Hassan said while sentiment posted a small recovery in May, consumers were still deeply pessimistic.

Responses over the survey week showed a slight improvement in sentiment following the Federal Budget announcement, despite few consumers expecting to benefit directly.

Mr Hassan said forward views were being weighed down by uncertainty around energy supply, with the Strait of Hormuz still effectively shut. Rate rise fears were also in the mix.

The survey’s mortgage rate expectations index — which tracks consumer expectations for variable mortgage rates over the next 12 months — has now hit a fresh three-year high.

“Even with three hikes already done this year, 85 per cent of consumers still expect mortgage rates to increase further over the next 12 months,” Mr Hassan said.

“That is closer to 90 per cent across consumers with a mortgage.”

Westpac’s survey came the same day the Reserve Bank of Australia, in the minutes of its May 5 meeting, said raising interest rates to a 15-month high of 4.35 per cent would give the board scope to monitor how households responded to the Iran war that had triggered higher fuel prices.

Mr Hassan said the central bank was likely to pause at its next meeting on June 15-16 to assess the impacts of the energy price shock and significant monetary tightening.

“The latest consumer sentiment survey points to a material slowing in demand in response to both higher interest rates and cost of living pressures,” he said.

“However, inflation risks remain elevated with higher energy costs passing through to other prices.

“That means the board will likely have little time to catch its breath, with further rate hikes expected in subsequent meetings.”

AMP economist My Bui said consumer sentiment was a soft leading indicator for the RBA, meaning it gives a good guide but does not necessarily translate into actual spending behaviour.

For example, she said sentiment remained pessimistic throughout 2025 despite rising discretionary consumption.

“We expect persistently weak sentiment to translate into lower household consumption growth this year, from 2.4 per cent year-on-year in 2025 to just around 1.2 to 1.3 per cent year-on-year by the end of 2026,” Ms Bui said.

“This in turn could ease inflation pressures towards the end of the year.”