Australian Consumer Confidence Takes a Hit
As the new year gets underway, Australian consumers are feeling the pinch of financial stress, leading to a decline in confidence for the second month in a row. According to a recent survey, the Westpac-Melbourne Institute index of consumer sentiment slipped 0.7% in January, following a 2.0% drop in December.
Financial Worries Weigh Heavily
The survey’s findings suggest that Australians are increasingly concerned about their financial situation, with the assessment of family finances compared to a year ago plummeting 7.8% to 77.7 in December. High mortgage rates appear to be the main culprit, outweighing the benefits of tax cuts introduced in 2024.
A Glimmer of Hope on the Horizon
Despite the current gloom, there are signs that consumers are expecting things to improve in the future. The index of family finances for the next 12 months rose 1.1% to 104.4, indicating that optimists are in the majority. Additionally, the survey’s measure of the economic outlook for the next 12 months remained steady, while the outlook for the next five years edged up by 0.7%.
Spending Plans on Hold
The survey’s results suggest that consumers are unlikely to embark on a spending spree anytime soon, which should come as a relief to the Reserve Bank of Australia. With inflation concerns subdued, the door may be open for some easing in monetary policy in the coming months. However, the measure of whether it was a good time to buy a major household item, while rising 1.8%, remains historically weak at 90.8.
A Cautious Outlook
According to Westpac chief economist Luci Ellis, “The consumer mood has soured for two months in a row and remains on the pessimistic side. However, sentiment is still less negative than a year ago, and some components suggest that consumers expect things to continue to improve from here.” As the year unfolds, it remains to be seen whether consumer confidence will continue to falter or begin to rebound.
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