Australian Consumer Sentiment Continues To Rise In January, Yet Westpac Maintains That It Is Still “Depressingly Low”

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January saw an upswing in Australian consumer sentiment, per a private survey. Consumers were positively affected by the temporary halt of rate hikes from the Reserve Bank, even though the overall economic condition remained poor.

In January, the Westpac Melbourne Institute Consumer Sentiment Index surged a robust 5% to 84.3 from 80.3 in December – its most significant jump since April 2021.

Australian Consumer Sentiment

Despite the initial surge of optimism, Westpac analysts cautioned that this sentiment would only be sustained with an increase in rates from the Reserve Bank of Australia (RBA) since there was no meeting during the month.

The economic conditions in Australia are still sluggish, and consumer confidence has only marginally improved but is still near its lowest point ever.

We should be cautious about reading the January sentiment rise as part of a continuing trend. Westpac expects the Reserve Bank Board to continue tightening its interest rate policy at its next meeting on February 7. The sentiment is still depressingly low,” Bill Evans, Chief Economist at Westpac, noted.

Evans indicated that sentiment was likely at its worst in November and is projected to improve gradually over the following months as inflation diminishes.

Australia’s Annual Inflation Rate Falls

The Reserve Bank of Australia is likely to raise rates by 25 basis points when the board meets in February, as inflation figures have recently hit their highest levels since the early 90s.

In 2022, consumer sentiment plummeted due to inflation and interest rate hikes that particularly hit household spending.

Westpac predicts interest rates will continue to increase by 75 basis points before the RBA backs off its hikes. Additionally, inflation is expected to slow down from now until 2023.

Consumer confidence among homeowners grew in January, partly due to the lack of a rate hike and an increase in optimism regarding employment.

In 2022, Australia’s labour market was quite tight, thus providing a solid foundation for households to continue spending despite slow wage growth.

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