Surprise decline in consumer sentiment over February

The Westpac-Melbourne Institute of Consumer Sentiment Index has taken a major hit falling from 120.1 in January to 117 in February, a 2.6 per cent decline.

Bill Evans, Westpac chief economist commented on the disappointing results.

“The fall in the Index is a little surprising. Households received a very welcome surprise in February when, despite strong media and market speculation to the contrary the Reserve bank decided not to raise the overnight cash rate,” he said.

“However, the level of the Index remains very high. It is still 2.9 per cent above the December 2009 reading; 3.2 per cent above the reading of six months ago and 15.2 per cent above its long term average.”

Evans emphasised that in February report a special question was included about consumers’ expectations for mortgage interest rates, the results of which were very one sided.

“An overwhelming 93 per cent of consumers expect rates to rise over the next 12 months with over 60 per cent expecting an increase of more than 1 per cent,” he said.

“This is consistent with the reasonable commentary on the RBA’s rate decision, which emphasised that rates were still likely to rise further over the course of the year.”

Respondents’ views on their own finances was the hardest hit category in February, with family finances compared to a year ago falling 5.4 per cent and the 12 month outlook for finances dropping 4.6 per cent.

Economic conditions over the next 12 months fell by 0.8 per cent, whether now is a good time to buy a major appliance also fell 4.1 per cent and the five year outlook for economic conditions improved by 1.6 per cent.

Evans said that he expects the Reserve Bank Board will hold off on a rate rise once again when it meets on 2 March 2010.

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