Despite recent positive trends in Australia’s inflation and the anticipated interest rate cuts, consumer sentiment remains disheartening. The Westpac consumer confidence index has recorded a slight rise to 92, yet this figure remains below the neutral mark of 100, indicating ongoing unease among Australians, a sentiment that has persisted for over three years.
AMP economist My Bui noted that there’s been an upward trend in consumer sentiment throughout 2024, largely due to a resilient job market and declining inflation rates. However, this upward momentum appears to have plateaued, as confidence levels have stagnated since the year’s outset.
Recent data from the Australian Bureau of Statistics (ABS) reveals that living costs have escalated beyond inflation rates. Core inflation dropped to 2.9% in the March quarter, with the overall consumer price index at 2.4%. Yet, households are experiencing living cost increases of up to 3.5% over the past year, outpacing these inflation figures. This situation has particularly impacted expenses related to health, energy, housing, and insurance, placing a significant burden on many Australians. Only self-funded retirees have seen their costs align closely with inflation.
The rise in living costs has been driven by increasing mortgage interest rates, higher insurance premiums, and food prices, as highlighted by ABS acting head of prices statistics, Neel Tikaram. The surge in mortgage costs is linked to growing mortgage debt and the transition from fixed-rate to more expensive variable-rate mortgages.
Looking ahead, it is expected that the Reserve Bank of Australia (RBA) will implement a second rate cut this year, which could provide some financial relief for households. Current market indications suggest nearly a 50% likelihood of a double interest rate cut, reducing the official cash rate from 4.10% to 3.60%.
Bui emphasised that the fragile consumer confidence figures support the need for the RBA to reconsider and potentially lower interest rates. With both consumer and business confidence remaining tenuous, Australian GDP recovery faces a challenging path. External threats, including a slowdown in global trade, further complicate the scenario. Analysts anticipate at least two more rate cuts in the near future, suggesting one may occur in May and another in August.
Overall, while there are glimmers of hope due to inflation easing, the persistent pessimism among consumers reflects ongoing challenges and uncertainties in the Australian economy.