Australia consumer sentiment worsens in Jan- Westpac

Investing.com-- Australian consumer sentiment deteriorated in early-January, a private survey showed on Tuesday, as signs of sticky inflation kept respondents on edge over more interest rate hikes and lower household savings.

The Westpac-Melbourne Institute Index of Consumer Sentiment fell 1.3% in early-January to 81 points, moving back towards COVID-era lows and largely reversing an improvement seen in December.

An elevated cost of living and high interest rates continued to be a main point of contention for consumers, Westpac said, even as broader financial markets now began pricing in Australian and U.S. interest rate cuts this year.

“For consumers, the new year looks to have picked up where the old one left off: cost of living and high interest rates continuing to dominate and sentiment bumping around deeply pessimistic levels,” Matthew Hassan, Senior Economist at Westpac Group wrote in a note.

“Despite easing rate rise fears, consumers are much more ‘hawkish’ on the interest rate outlook in Australia than both financial markets and economists.”

Mortgage holders in particular were largely pessimistic on the path of interest rates.

But despite consumer sentiment remaining weak, retail spending- which is a key driver of economic growth- still showed some resilience. The Black Friday shopping event saw retail sales blow past expectations in November.

But high retail spending factors into stickier inflation, which in turn could invite more monetary tightening.

The Reserve Bank of Australia hiked interest rates by a cumulative 425 basis points since early-2022, as it moved to combat high inflation in the wake of the COVID-19 pandemic.

But while the hikes did have some impact on inflation, price pressures still remained well above historical averages. November’s consumer price index reading came in lower than expected, but remained well above the RBA’s 2% to 3% annual target.

Focus is now on a CPI reading for December and the fourth quarter, which is due later in January. The reading is widely expected to factor into the RBA’s stance on interest rates when it meets in early-February.

While the RBA has kept rates on hold since November, the central bank has repeatedly warned that the inflation outlook remains sticky, and that any persistence in inflation is likely to invite more rate hikes.

Westpac expects the central bank to keep rates on hold in February.

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