Consumer sentiment in Australia drops as rates, inflation surge

The index reading meant pessimists greatly outnumbered optimists and back to lows not seen since the beginning of the pandemic.

The latest sentiment decline follows Australian Bureau of Statistics’ (ABS) figures showing inflation surged from 6.1 per cent in June to 7.3 per cent in September, with official forecasts for inflation to go even higher by the end of 2022 and to remain relatively high through 2023.

"Interest rate rises were a clear factor weighing on confidence in the month," said Westpac chief economist Bill Evans.

The Reserve Bank of Australia (RBA) raised rates a quarter point to a nine-year high of 2.85 per cent early in November and Evans noted that survey results taken after the hike showed a very sharp fall.

Westpac's measure of the economic outlook for the next 12 months slid by 7 per cent in November, while the outlook for the next five years dived by 7.3 per cent.

Measures of family finances compared with a year ago fell 3.4 per cent, while outlook for finances over the next 12 months tumbled by 11.2 per cent likely hit by reports of electricity prices possibly rising by more than 50 per cent over the next year.

Amongst those surveyed after the RBA decision, nearly 60 per cent expect rates to increase by 1 percentage point or more over the next year, up on 54 per cent in the October survey.

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. Nearly 40 per cent of consumers expect to spend less on gifts this year—the highest proportion planning cutbacks since the survey started asking the question in 2009, the average being 33 per cent, Westpac said in a release.

Expectations for the economy showed a particularly sharp deterioration following the RBA decision.

Fibre2Fashion News Desk (DS)