Australia consumer sentiment drops to lowest since April 2020 on rates

AUSTRALIA’S consumer sentiment tumbled in November to the lowest level in 2-1/2 years as higher interest rates and surging inflation stokes concern about family finances. Westpac Banking’s index of consumer sentiment dropped 6.9 per cent to 78 - a level last seen at the start of the pandemic in April 2020, a statement on Tuesday (Nov 8) showed. The reading highlights pessimists greatly outnumber optimists, with a dividing line of 100. Consumer confidence has deteriorated since the Reserve Bank initiated its policy tightening cycle in May, taking the cash rate to 2.85 per cent this month from a record low 0.1 per cent. Households spending has so far held up reasonably well, though it’s expected to slow in the period ahead. “To date, consumer spending has been quite resilient to these recessionary confidence levels due to record low unemployment and the pandemic-related accumulation of household savings,” Westpac chief economist Bill Evans said. “The November sentiment print is particularly important given the lead-in to the Christmas shopping season. Not surprisingly, Christmas spending plans are very subdued this year.” The “family finances, next 12 months” sub-index recorded a steep 11.2 per cent fall to 81.7, the lowest level since 2014. Confidence in the economy also deteriorated. The “economic outlook, next 12 months” sub-index fell 7 per cent and the “economic outlook, next five years” sub-index was down by 7.3 per cent. The survey came after third-quarter inflation jumped more than expected, prompting the central bank to push rates to the highest level since April 2013 while signalling further tightening ahead. The government’s budget too contained little for households to help ease rising costs. “We expect spending to slow markedly in 2023, something that is necessary to ensure inflation comes back to the Reserve Bank’s 2-3 per cent target,” Evans said. “If that economic slowdown is sufficient to ‘wring-out’ high inflation and the associated inflationary psychology, then the Reserve Bank will have done its job.” BLOOMBERG