The short version
- Consumer confidence indices have dropped sharply following the Reserve Bank of Australia's recent interest rate increase.
- Mortgage holders show the deepest pessimism, while renters remain relatively optimistic despite broader economic gloom.
- Analysts warn that declining sentiment correlates with reduced household spending and potential consumption contraction.
Australian households have entered a period of profound economic pessimism, with consumer confidence metrics plunging to their lowest levels in more than three decades. This sharp deterioration follows the Reserve Bank of Australia’s decision to raise interest rates for the fourth time this year, pushing borrowing costs to heights not witnessed since 2011. The psychological impact on consumers appears immediate and severe, marking a significant shift in public mood regarding personal finances and the broader economic trajectory.
Data from the Westpac–Melbourne Institute consumer sentiment index reveals a steep decline in optimism. Conducted between late September and early October, the survey recorded an overall drop of 4.7% to an index reading of 80.4%. However, the most striking data points emerged from respondents surveyed after the central bank’s announcement on September 29. For this group, the index fell to 67.2%, a figure that represents the weakest sentiment recorded since the late 1990s. This sudden drop underscores how quickly monetary policy changes can erode household morale.
Independent surveys corroborate this downward trend. The weekly ANZ-Roy Morgan consumer survey also registered a decline of approximately 5%, landing at 67.1 points. The convergence of these two major indicators suggests that the loss of confidence is widespread and not an anomaly of a single methodology. Matthew Hassan, head of Australian macro-forecasting at Westpac, described the current environment as a persistent cost-of-living crisis that shows no signs of abating. He noted that the latest rate hike has badly rattled consumers, causing a sharp deterioration in sentiment during the survey period.
The erosion of confidence is most acute among those with mortgages. Borrowers are currently the most pessimistic subgroup within the housing sector, with their sentiment index sitting at just 77 points. This reflects the direct pressure of rising borrowing costs on household budgets. Interestingly, homeowners who have paid off their loans experienced the largest month-over-month decline in sentiment. This drop coincides with a sixth consecutive month of downturn in the housing market, suggesting that even those without debt are feeling the strain of falling asset values and broader economic uncertainty.
In contrast to borrowers and outright owners, renters displayed relative resilience. Their sentiment score remained unchanged at 84.8 points, making them the most optimistic group among housing subcategories. This divergence highlights how different segments of the population are experiencing the economic shock. While mortgage holders face immediate cash flow pressures from higher interest payments, renters may be less directly impacted by rate hikes, although they remain vulnerable to other inflationary pressures in the rental market.
Beyond housing, assessments of family finances and buyer sentiment were heavily affected. Expectations for the long-term economic outlook fell less dramatically than current financial assessments, but five-year projections have returned to lows last seen in August 2020. That period followed strict lockdown measures in Melbourne and preceded the expansion of jobkeeper subsidies. The return to such low expectations indicates that consumers are bracing for a prolonged period of economic difficulty rather than a temporary setback.
Rising fuel costs are exacerbating the financial strain on households. AMP economist My Bui noted that the decline in confidence was unsurprising given the combination of rate hikes and energy price increases. Calculations suggest that the weekly petrol bill for a typical Australian household has risen by $20 compared to the beginning of the year. This additional expense, combined with higher mortgage repayments, squeezes disposable income and forces difficult trade-offs in daily spending.
The practical implications of this sentiment drop are significant for the broader economy. Historically, consumer confidence correlates strongly with per capita household spending. The sustained downtrend over the past twelve months suggests that consumption per person is likely to fall further, potentially entering contraction territory this year. As households pull back on discretionary spending to manage essential costs, businesses may face reduced demand, creating a feedback loop that could dampen economic growth.
Despite the gloom in consumer sentiment, the labor market shows some resilience. Fears of job losses are rising, with unemployment expectations ticking up by 1.9%. However, structural indicators remain robust. Job vacancies have increased to a two-year high of 122 points, according to Citi analysts Josh Williamson and Faraz Syed. This level of vacancy activity aligns with business expectations for positive employment growth, suggesting that while consumers are worried, employers are still actively hiring.
The divergence between weak consumer confidence and a resilient labor market presents a complex picture for policymakers. The Reserve Bank must balance the need to control inflation against the risk of stifling economic activity through aggressive rate hikes. As households remain stuck in what analysts describe as a cost-of-living nightmare, the path forward remains uncertain. Whether the current pessimism will translate into a deeper economic slowdown or if strong employment figures will eventually restore confidence remains to be seen.
Sources behind this briefing
Go to the original reporting
- The Guardian World↗Australian consumer confidence plunges to worst level since 1990s after RBA rate rise
