Australian consumer confidence slumps in April

SYDNEY: Australia’s consumer confidence declined in April as persistent inflation and interest rates at a 12-year high continued to squeeze households, leaving them gloomy about the economic outlook.

Sentiment dropped 2.4% to 82.4 points, indicating pessimists heavily outweigh optimists as a reading of 100 is the dividing line, a Westpac Banking Corp survey showed yesterday.

The index has held below 100 for more than two years.

“Outside of the deep recession of the early 1990s, this is easily the second most protracted period of deep consumer pessimism since we began surveying in the mid-1970s, with all other sentiment slumps lasting nine months or less,” said Matthew Hassan, a senior economist at Westpac.

“Consumer price rises have outstripped wage growth by six percentage points over the last three years.”

The weakness reflects the Reserve Bank of Australia’s (RBA) inability to rule out further interest rate hikes, suggesting little relief in the offing for consumers.

While economists widely expect the central bank to lower rates late this year, a surprisingly resilient labour market and a relentless rise in house prices could delay a rate cutting cycle.

One cause for optimism ahead is the tax cuts that are due to come into effect on July 1.

Westpac highlighted the survey’s bleak assessments of household balance sheets: the “finances versus a year ago” sub-index was just 65.5, suggesting tax relief “can’t come fast enough for consumers”.

Confidence in the economic outlook slipped in April, with the “economy, next five years” sub-index declining 4.4% to 89.8, shifting back toward the low seen when the RBA raised rates in November, the survey showed.

The “economy next 12 months” sub-index declined 2.7% to 82.7, having fallen 7.1% in two months.

The RBA raised rates by 4.25 percentage points between May 2022 and November last year, its most aggressive tightening cycle in a generation as it tries to rein in an inflation breakout triggered by pandemic-era stimulus.

“The bank’s latest commentary showed it is becoming a little more comfortable that further rate rises will not be required, but it is not yet confident enough about the inflation outlook to consider the case for rate cuts,” Hassan said.

“The March quarter consumer price index update, due on April 24, will be key to shaping the RBA’s views.” — Bloomberg