Australian consumer sentiment sinks to six-month lows in October

[SYDNEY] Australia’s consumer confidence slipped to a six-month low this month on renewed doubts about hopes of future interest rate cuts, given recent strength in inflation.

Sentiment declined 3.5 per cent to 92.1 points in October, a Westpac Banking survey showed on Tuesday (Oct 7). Pessimists persist in outweighing optimists, and it has now been 44 months since Australian consumers last registered a sentiment reading above 100.

“Consumers appear to have been rattled by recent updates on inflation,” said Matthew Hassan, Westpac’s head of Australian macro forecasting, referring to two back-to-back increases in a closely-watched monthly price gauge. That, together with “signs of firmer consumer demand and a pick-up in housing markets, looks to have sparked renewed doubts about the path of interest rates, weighing on near-term expectations for family finances and the economy”.

Australia’s central bank has lowered borrowing costs by 75 basis points since the start of the year for a cash rate of 3.6 per cent. Reserve Bank of Australia governor Michele Bullock last week signalled patience on further rate cuts, pointing to a stronger-than-expected pick-up in household consumption driven by real income growth and a tight labour market.

Economists see another rate reduction in November and a final one early next year, for a terminal rate of 3.1 per cent.

Other key data points:

• Assessments of family finances recorded the biggest falls. The ‘family finances, next 12 months’ sub-index declined nearly 10 per cent to 97.1, the weakest read in just over a year.
• The ‘family finances vs a year ago’ sub-index was down 4.8 per cent to 82.1, unwinding just over half of the gain over the previous two months.
• Consumers were also more downbeat on near-term prospects for the economy. The ‘economic outlook, next 12 months’ sub-index declined 2.5 per cent to 89.9, the weakest read in a year.
• The ‘time to buy a major item’ subindex dipped 1.1 per cent to 97.2.
• While sentiment has been shakier, consumers are still not concerned about the outlook for jobs. The Westpac-Melbourne Institute Unemployment Expectations Index declined 2.9 per cent to 127.6 in October (recall that a lower index reads mean more consumers expect unemployment to fall over the year ahead). BLOOMBERG