Australia consumer sentiment improves slightly in Dec- Westpac

Investing.com-- Australian consumer sentiment improved marginally in early-December, a private survey showed on Tuesday, aided by easing fears of higher interest rates, although high inflation and increased taxes saw consumers remain largely negative. 

The Westpac-Melbourne Institute Index of Consumer Sentiment rose 2.7% in December to 82.1, rising further away from COVID-era lows, but still remaining very weak.

Sentiment improved largely in the wake of the Reserve Bank of Australia’s December meeting, where the central bank kept rates on hold and gave few signals on whether it will hike them further. 

But a bulk of other factors still kept sentiment largely muted, with Westpac analysts noting that 2023 was the second-worst calendar year for sentiment in data going back to 1974. 

Consumers remained on edge over any more rate hikes in 2024, especially as inflation remained elevated. But other economic readings showed that high interest rates were working as intended in bringing down demand- a trend that could spur further decreases in inflation. 

While inflation fell sharply from 30-year highs seen at the beginning of 2023, it was also well above the RBA's 2% annual target. The RBA only expects inflation to come comfortably within its target range by late-2025.

Strength in Australia’s job market also supported household sentiment, although high inflation and taxes saw consumers grow increasingly cautious with their savings. 

Recent data showed that Australia’s economy grew slightly less than expected in the third quarter, with declining exports to China acting as a major headwind. But government spending remained elevated, with Canberra stepping in to make up for a severe decline in consumer spending. 

The data also factored into more consumer pessimism over the near-term outlook, but sentiment over a recovery post-2024 appeared to have improved, the Westpac data showed. 

Westpac analysts said that the RBA’s rate hike decisions will remain a key point of interest for consumers going into 2024, but noted that there was now a higher bar for more interest rate hikes, amid recent cooling in the Australian economy. 

“High inflation remains the RBA’s primary concern, with the Board indicating it has a very low tolerance for any upside surprises on this front,” Matthew Hassan, Senior Economist at Westpac Group wrote in a note.