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Consumer confidence falls as rates rise

Australian consumer confidence has taken a “precipitous tumble” over the last seven months, comparable to plunges associated with severe economic dislocations.

Jul 12, 2022, updated Jul 12, 2022
Photo: AAP/Bianca De Marchi

Photo: AAP/Bianca De Marchi

The monthly Westpac-Melbourne Institute Index of Consumer Sentiment, a survey of 1,200 respondents conducted from July 4 to 7, fell another three per cent to 83.8 points in July.

“This marks the seventh consecutive monthly fall,” Westpac chief economist Bill Evans said.

“The index has now fallen 19.7 per cent since December 2021, a precipitous tumble.”

It’s comparable to the two-month plunge during the COVID-19 pandemic and declines over six months at the start of the Global Financial Crisis in 2008-09, the early 1990s recession, the mid-1980s downturn, and the early 1980s recession, Mr Evans noted.

The survey indicated that “anxiety around interest rates is increasing,” he said, adding that the Westpac team had been a “little surprised” that consumers hadn’t been more anxious about rate hikes the month previous.

Sentiment about labour market conditions remained strong, Mr Evans said, although there are often significant lags between shifts in confidence measures and the labour market.

Meanwhile a second consumer confidence survey, also released on Tuesday, found that sentiment fell last week for a second week in a row, particularly for home owners paying off a mortgage who are being hit by higher interest rates.

The weekly ANZ-Roy Morgan Australian Consumer Confidence Rating, based on 1,498 interviews during the week to Sunday, found consumer confidence fell 2.5 per cent to 81.6, well under the last three decade’s monthly average of 112.4.

Consumer confidence for those paying off a mortgage was down by a “sharp” 5.4 per cent, the survey found.

Since the talk of rate hikes began in late April, consumer confidence among mortgage holders has fallen 25 per cent, while confidence among renters is down four per cent.

Those saying it was time to buy a major household item decreased by 1.8 per cent.

Later on Tuesday, the Australian Bureau of Statistics will release household spending figures for May after the previous monthly figures showed expenditure was up 7.6 per cent through the year.

The Commonwealth Bank’s Household Spending Intentions Index showed a modest 0.9 per cent rise in June to 117.3, but there was clear evidence of weaker discretionary spending.

The marginal rise in the index, which combines CBA payments and lending data and Google Trends search information, was mostly driven by increased cost of goods and higher spending in transport, education and household service sectors.

“With further interest rate increases expected through the remainder of 2022, we would expect to see discretionary spending weaken further in coming months,” said CBA chief economist Stephen Halmarick.

The ABS will also release monthly figures for overseas arrivals and departures on Tuesday.

-AAP

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