Australia’s consumer confidence surges after pause in key rate
AUSTRALIA’S consumer confidence surged in April after the country’s central bank left its key interest rate unchanged for the first time in its almost yearlong tightening cycle.
Consumer sentiment jumped 9.4 per cent to 85.8, a Westpac Banking survey showed on Tuesday (Apr 11). Confidence is still 10.4 per cent below the level in April 2022, the month before the Reserve Bank of Australia (RBA) began raising rates.
“Despite this lift in April, we still characterise consumer sentiment as weak and consistent with Westpac’s view that consumer spending through 2023 and at least the first half of 2024 will be lacklustre,” said Westpac chief economist Bill Evans.
The survey, which was conducted Apr 3-6 and spanned the RBA board meeting, showed strong rises in sub-indexes around family finances and spending intentions. The sub index “family finances compared to a year ago” lifted 10.5 per cent, “family finances over the next 12 months” surged 12 per cent and “economic outlook over the next 12 months” advanced 16.5 per cent.
The “time to buy a major household item” sub-index rose 9.5 per cent from its lowest level in the history of the survey.
The solid reaction reflects the high sensitivity of Australian households to rate increases as most are on variable-rate loans. It underlines the fine judgement governor Philip Lowe needs to make in terms of cooling inflation without tipping the economy into recession.
The RBA has hiked by 3.5 percentage points since May to 3.6 per cent and has signalled the hurdle to further tightening is high. Lowe has said the board will closely monitor data on inflation, jobs, consumer spending and business surveys before making a decision on further increases.
“With underlying inflation still likely to be in the 6.5-7.0 per cent range and the unemployment rate holding around 50-year lows the case for extending the pause in May is likely to be challenged,” Evans said.
“The board’s decision will be to weigh the ‘here and now’ evidence against its two-year forecast.” BLOOMBERG
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