Australian Consumer Confidence Drops After Rate Hike and Rising Fuel Costs
Consumer confidence in Australia dropped by 4.7% in October, following the Reserve Bank of Australia's latest interest rate hike and rising petrol prices, according to CreditorWatch. The decline was driven by increased concerns over family finances, with post-rate hike sentiment notably weaker than pre-rate hike responses. Chief Economist Ivan Colhoun noted that household budgets are under pressure due to higher fuel costs and living expenses, which are also affecting business outlooks. A recent CreditorWatch survey highlighted living costs and rising operating expenses as major negative factors for businesses.
Despite the decline in personal financial conditions, broader economic expectations remained relatively stable. Views on the economy over the next 12 months and the next five years did not weaken as sharply. However, the labour market picture was mixed. The unemployment expectations index rose by 1.9% over the month and was 11.4% higher than a year earlier, reflecting a gradual upward trend. Colhoun cautioned that this signal should be treated with caution, as employment has continued to grow. Westpac also noted stronger job-loss fears in sectors like construction, hospitality, and transport.
Interestingly, hiring demand saw unexpected strength. ANZ-Indeed job ads rose by 2.2% in September after a 2.6% increase in August, a trend Colhoun described as surprising given weaker sentiment and tighter monetary policy. While SEEK's job ad series did not match this trend, a sustained increase in job ads could have significant implications for unemployment and interest rates. Colhoun emphasized that the Reserve Bank does not heavily weigh consumer confidence readings, preferring to observe sustained trends across various data points.
On monetary policy, Colhoun does not expect the current settings to be sufficient to return inflation to target by the second half of 2027. He noted that recent central bank communications suggest a gradual tightening path, with the next move potentially occurring in February. Overall, the Australian consumer is caught between rising living costs and low unemployment, creating a challenging economic environment.