Australia’s consumer sentiment posts partial recovery amid interest rate cut hopes

Australia’s consumer sentiment recovered slightly in May following Anthony Albanese’s landslide election win and as prospects of future interest rate cuts become more likely.

Sentiment lifted 2.2 per cent to 92.1 points, recovering about one-third of April’s tariff-related fall, according to a new Westpac-Melbourne Institute survey on Tuesday.

The bank’s consumer sentiment index has been stuck below the 100 level for more than three consecutive years, meaning there were more pessimists than optimists among those surveyed.

But there were some silver linings in the survey, which measures confidence based on assessments of family finances, expectations for the economy and whether now was a “good time to buy a major household item”.

Households have “a more confident view on the prospect of interest rate cuts”, Westpac head of Australian macro-forecasting Matthew Hassan said. Mr Hassan said last month’s benign inflation shored up consumer expectations for interest rate cuts.

Westpac expects the Reserve Bank to cut the cash rate by 25 basis points to 3.85 per cent when the board meets next week.

The outlook around family finances recorded the biggest improvement in April thanks to lower fuel costs and share market recovery.

AMP economist My Bui said the RBA next week would be armed with “likely okay” labour market data — due on Thursday — but softer consumer indicators.

She said recent retail sales and household spending figures showed zero growth over the first quarter, with cost-of-living pressures still a major issue for the average household.

“Household sentiment in Australia is very sensitive to interest rate moves, however, and with the RBA likely cutting further this year, there could be some boost to the current sentiment level,” Ms Bui said.

“However as the global outlook remains uncertain which could dampen consumer mood and willingness to spend, the recovery in both sentiment and consumption would be rather shallow and gradual throughout 2025.”

AMP is pencilling in 25-basis-point cuts in May and August.

Meanwhile, Ms Bui said leading consumer and business confidence readings were still fragile, signalling a challenging landscape for GDP recovery this year.

The Westpac survey came the same day National Australia Bank revealed business conditions declined April, driven by weaker profitability. Business confidence improved slightly but is still below its long-run average.

Purchase cost growth has ticked up to 1.7 per cent in quarterly terms, while labour cost growth remained higher than pre-COVID at 1.6 per cent.

“Overall, business pricing power remains weak, and consumers likely need to be enticed with promotions to spend,” Ms Bui said.