(Sept 8): Australia’s consumer confidence slumped back towards deeply pessimistic territory in September, spurred by household concerns that the Reserve Bank will resume raising interest rates as well as higher fuel costs.
The Consumer Sentiment Index dropped 5.2% to 84.4 points, Westpac Banking Corp said in a statement on Tuesday, with 100 being the dividing line between pessimists and optimists. The survey showed cost of living pressures “have ratcheted up again” with a sub-index tracking assessments of "family finances vs a year ago" tumbling 9.2%.
“The fall takes sentiment back towards the deeply pessimistic levels seen earlier in the year,” said Matthew Hassan, Westpac’s head of Australian macro-forecasting. “Local pump prices have lifted back above US$2/litre for the first time since April, reflecting higher global energy prices and the end of the temporary halving in fuel excise tax.”
The RBA is under pressure to resume raising rates when it meets in three weeks’ time following stronger inflation and GDP data. It has consistently highlighted the need to return the economy to balance, boosting borrowing costs three times between February and May to take the cash rate to 4.35%.
A separate survey of corporate sentiment by National Australia Bank Ltd (NAB) showed business confidence fell two points to minus eight in August. Business conditions — a measure of profitability, sales and employment — dropped five points to minus one, sliding into negative territory for the first time in six years.
“The decline in conditions in the month was broad-based across industries and was driven by a 10 point drop in profitability,” NAB said. “The decline in the profitability index bears watching, given its leading relationship with broader labor market conditions.”
The stronger July inflation reading “has stoked fears that the RBA will raise interest rates further in coming months,” Hassan said. “This has weighed on consumer expectations for finances and the economy. It has likely also added to unease about the continued weakening in housing markets.”
Australia’s housing market is in the middle of a downturn after the government scrapped tax breaks for property investors as well as the rate rises. HSBC Holdings Plc on Tuesday increased its forecast peak-to-trough drop in property prices to 13% from 8% previously.
Property consultancy Cotality’s national home price gauge fell 0.9% in August, a fifth month of declines, taking the drop from the March peak to 3.6%.
“Interest rate concerns had a clear negative impact on consumers with a mortgage,” Hassan said. “Sentiment dropped 14% across this sub-group overall with a particularly large 18% drop in assessments of ‘time to buy a major item’ suggesting the mortgage belt is tightening up on spending plans.”
Tuesday’s consumer confidence also showed:
- Some 64% of consumers expect mortgage rates to increase further over the next 12 months.
- The Westpac–Melbourne Institute Unemployment Expectations Index rose 2.8% to 139.4 (a higher reading mean more consumers expect unemployment to rise over the year ahead). The long-run average is 129.
- The ‘time to buy a major item’ dropped 4.8%.
- The ‘time to buy a dwelling’ index dropped 10.7%.
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