Consumer sentiment still in ‘deeply’ pessimistic territory amid concerns inflation could trigger RBA rate hike

Headshot of Cheyanne Enciso
Cheyanne Enciso
The Nightly
The RBA will be closely monitoring monthly inflation data for May on Wednesday.
The RBA will be closely monitoring monthly inflation data for May on Wednesday. Credit: DEAN LEWINS/AAPIMAGE

Australian consumer sentiment is still firmly in deeply pessimistic territory despite a slight recovery in June, reflecting concerns that still-high inflation could prompt the Reserve Bank to hike interest rates.

Westpac in its latest consumer sentiment survey on Tuesday revealed positives from fiscal support measures were being negated by increased concerns about inflation and the outlook for interest rates.

Westpac senior economist Matthew Hassan said this was evident in consumer assessments of recent news coverage, with news related to “budget and tax”, and “inflation” recalled by half of the consumers surveyed.

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The former was viewed as less unfavourable than in March, reflecting the well-received Federal Budget; cost-of-living measures delivered by both Federal and State Governments; as well as the stage 3 tax cuts set to commence next week.

But the news on inflation was viewed as less favourable than in March, with assessments retracing most of the way back to the levels seen in December when the central bank had just raised the cash rate in response to persistently high inflation.

“Notably, the wider news backdrop is still viewed as broadly unfavourable,” Mr Hassan said.

“The more unsettled picture around the economy also eroded consumer confidence around jobs.”

Overall, the Westpac survey pointed to a mix of pressures impacting consumers, improved assessments of family finances and buyer sentiment offset by renewed concerns about the economic outlook.

“The main takeaway here is that while pressures on family finances and purchasing power may be starting to ease, it would require much bigger, double-digit gains in these sub-indexes, before we could start to say that these issues have convincingly subsided,” Mr Hassan said

Westpac — which has been charting consumer sentiment since the mid-1970s — also revealed half of consumers expect mortgage rates to rise over the next year.

Household budgets are being crunched by higher cost-of-living and interest rates, which is currently at a 12-year high of 4.35 per cent.

While the RBA opted to leave the cash rate unchanged, it left open the possibility of a hike to achieve its goal to bring inflation back to its 2 to 3 per cent target range.

The RBA will be closely monitoring monthly inflation data for May on Wednesday.

The RBA board next meets on August 5-6 and while some economists are already calling the meeting “live” for a possible interest rate hike, Westpac expects the cash rate to remain on hold.

Governor Michele Bullock has previously said June quarter inflation data — set to be released at the end of July — would be critical ahead of the board’s next meeting.

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