Australian Consumer Sentiment Update

Australian consumer sentiment improved in early August after the Reserve Bank kept interest rates unchanged and the effects of recent tax breaks became more apparent, although consumers remained broadly pessimistic.

The Westpac-Melbourne Institute consumer sentiment index rose 2.8% in August, exceeding expectations for a 0.5% increase and recovering from a 1.1% decline in the prior month.

Despite this improvement, the index still remained within a range seen for the past two years, as sentiment was constrained by persistent inflation and high interest rates.

Fears of higher rates were somewhat eased after the Reserve Bank of Australia maintained rates during its August meeting, indicating some signs of easing inflation. However, RBA governor Michele Bullock cautioned that ongoing inflation could lead to further rate hikes.

Data indicated that consumers were less concerned about rate hikes, encouraged by tax breaks and fiscal support introduced earlier this year. Sentiment toward the labor market remained relatively strong, while sentiment toward the housing market fell to a record low.

Persistent inflation and high interest rates have impacted consumer sentiment over the past two years, particularly as Australian economic growth has slowed. This trend is likely to continue in the near term, with the RBA providing limited indications of interest rate cuts as inflation shows few signs of cooling.