Analysis: If you’ve read much about the economy recently, you’ll have noticed not a hell of a lot of the headlines have been positive as of late.
While Australia is still a strong performer by global standards – unlike many other countries, it hasn’t had any post-COVID quarters of economic decline, has dodged the worst of Donald Trump’s tariffs, and still has historically low unemployment – there are signs the easing cost-of-living crisis might yet have a sting in its tail.
Shoppers walk past a sale sign in a Melbourne shopping centre. (Eamon Gallagher)
So it has come as a major surprise that a new survey has revealed consumers are currently feeling cheerier about the economy than at any other point in the last seven years, outside the highly volatile years of the pandemic.
The latest edition of the Westpac-Melbourne Institute Consumer Sentiment Index, released today, surged 12.8 per cent to 103.8.
That’s the first time the index has climbed into overall optimistic territory (over 100) since early 2022.
“This is an extraordinary and somewhat surprising result,” Westpac head of Australian macro-forecasting Matthew Hassan said.
“Sentiment overall is still only marginally positive rather than strongly optimistic.Â
“However, the move draws a clearer line under what had been an extended period of consumer pessimism when disposable incomes were being hit hard by a combination of high inflation, high interest rates and rising tax payments…
“The real surprise, though, is how much these positives have outweighed renewed concerns about inflation and the outlook for interest rates.”
In a sign those worries about the cash rate haven’t completely evaporated, sentiment dropped slightly among households with a mortgage despite the overall rise.
It could also paint a promising picture for retailers ahead of the Christmas period – while about a third of consumers are planning to spend less this high season than a year before, 15 per cent say they’ll spend more.
“While the mix falls short of that seen during the post-COVID reopening boom in 2021, it’s the ‘least restrained’ spending intentions we have recorded outside of that year since 2016,” Hassan wrote.
It’s the highest consumer confidence reading since the end of the pandemic. (Getty)
However, not everyone is convinced that the uptick is much more than a volatile outlier in the survey results.
“This result is a huge surprise, given the RBA’s message last week of no further near-term interest rate relief,” CreditorWatch chief economist Ival Colhoun said.Â
“It’s also a little hard to believe… I’m inclined to suspect survey volatility.”
If the rise is genuine though, and consumers are planning to start spending more, that could suggest recent inflation pressures are unlikely to ease anytime soon – which would only further dent the chance of another interest rate cut.
“Perhaps an explanation for the improvement is that prior negativity has lifted,” Colhoun said.
“Again, I’d like to see further confirmation next month, but at face value it’s another positive signal on the economy and unhelpful for the likelihood of further interest rate cuts being delivered any time soon.”
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