Australia consumer sentiment worsens in July on rate, inflation fears- Westpac Australian consumer sentiment worsened in early-July, coming close to its weakest level since the COVID-19 pandemic as sticky inflation saw consumers grow more fearful of higher interest rates.

The Westpac-Melbourne Institute consumer sentiment index fell 1.1% in July, compared to a 1.7% rise in the prior month. 

Sentiment was battered chiefly by three consecutive months of stronger-than-expected inflation prints, which ramped up expectations that the Reserve Bank of Australia could hike rates further this year. 

The central bank is also expected to keep rates higher for longer, and flagged the possibility of such a scenario during its June meeting, where the RBA was seen striking a much more hawkish chord than expected.

“While we still expect the Board to remain on hold at (the August) meeting and the next, this view is contingent on inflation continuing to decline broadly in line with our (and the RBA’s) expectations,” Westpac analysts wrote in a note. 

Fears of higher interest rates and inflation also largely offset any optimism over increased tax cuts, which came into effect from July 1, the Westpac report showed. 

High inflation eats into household finances and limits consumer spending, while high interest rates also present steeper mortgage rates and increased rents for consumers.

This trend has kept consumer sentiment largely subdued for over a year.

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