Australia consumer sentiment rises in Jan, still 'depressingly low' - Westpac

By Ambar Warrick

Investing.com -- Australian consumer sentiment improved more in January, a private survey showed on Tuesday, as consumers welcomed a brief respite from the Reserve Bank’s interest rate hikes, although the overall picture of the economy still remained negative.

The Westpac Melbourne Institute Consumer Sentiment Index rose 5% in January to 84.3 from 80.3 in the prior month. The reading was the index’s biggest increase since April 2021.

But Westpac analysts warned in a statement that the boost in sentiment was likely to be temporary, given that the Reserve Bank of Australia (RBA) did not hike rates during the month only as there was no meeting scheduled. Broader economic conditions in Australia still remain weak, and consumer sentiment, while having improved, is still trending close to historic lows.

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

Still, Evans noted that sentiment had likely bottomed out in November, and is likely to improve in the coming months as inflation eases, albeit slightly.

The RBA is expected to hike rates by another 25 basis points when it meets in February, given that Australian inflation is trending at over 30-year highs. Rising inflation and interest rates battered consumer sentiment in 2022, as household spending bore the brunt of tighter monetary conditions.

Westpac expects interest rates to rise by another cumulative 75 bps before the RBA eases on the hikes. Inflation is also expected to ease through 2023.

Confidence among mortgage holders improved in January amid some relief over no interest rate hikes, while optimism over the labor market also increased. Australia’s labor market remained tight in 2022, and was a major contributor to steady household spending, even as wage growth lagged.