Westpac-MI Australian consumer sentiment index up 6.2% to 89.8 in Oct

Australian consumer expectations for interest rates fell sharply and cost-of-living pressures continue to moderate, but progress remains slow, according to the latest issue of Westpac-MI Consumer Sentiment Bulletin.

The headline consumer sentiment index is a composite measure based on five sub-indexes that capture responses to more specific questions: two on family finances, two on the economic outlook and one on whether now is a good time to buy a major household item. While all sub-indexes improved in October, the biggest moves were around expectations for the economy.

Easing rate rise fears drove a particularly big lift in near term expectations. The ‘economic outlook, next 12 months’ sub-index jumped by 14.3 per cent to 92.8, and the ‘economic outlook, next 5 years’ sub-index rose by 8 per cent to 97.8. Both sub-indices are now slightly above their long run averages—the first time seen since May 2022.

Consumers broadly expect their finances to stabilise over the year ahead. At 99.7, the ‘family finances, next 12 months’ sub-index is close to the ‘neutral’ level of 100, meaning the proportion of Australian consumers expecting their finances to improve is roughly the same as the proportion expecting a deterioration.

“This is the most promising update we have seen over the cycle to date. While pessimism still dominates, the October consumer sentiment read is the best since the RBA [Royal Bank of Australia] interest rate tightening phase began two and a half years ago,” wrote Matthew Hassan, head of Australian macro-forecasting at Westpac, in the bulletin.

“Expectations have been buoyed by interest rate cuts abroad and more promising signs that inflation is moderating locally. Consumers are no longer fearful that the RBA could take interest rates higher. However, responses around family finances suggest progress on cost-of-living pressures – the main source of negative sentiment reads overall—is still slow,” he wrote.

The Westpac–MI mortgage rate expectations index, which tracks consumer expectations for variable mortgage rates over the next 12 months, dropped by 14.1 per cent in October to be down by a third since July.

At 106.4, the index is at its lowest level since the RBA was actively easing policy during the pandemic and on a par with the lows seen during previous periods of interest rate cuts over the last 14 years. The detail shows just over half of consumers now expect mortgage rates to be unchanged or lower over the year ahead, compared with about a quarter back in July.

The shifting interest rate and economic outlook has seen consumers become a little less anxious about jobs. The Westpac–MI unemployment expectations index fell by 6.2 per cent to 129.8 in October. The move unwinds most of the slight deterioration seen over the previous two months and brings the index back in line with its long-run average.

Fibre2Fashion News Desk (DS)