The latest Westpac-Melbourne Institute Index of Consumer Sentiment has fallen 4.2%, its weakest point since September 2020, and not surprisingly pessimists outnumbered optimists.
The previous recorded low marked the end of a 15-month run of pessimism that began when the economy hit a flat patch in Q2 2019 and worsened dramatically with the onset of the global pandemic just over two years ago, Westpac chief economist, Bill Evans said.
The survey was conducted from February 28 to March 4 and captured most of the response to the south-east Queensland and northern NSW floods but preceded most of the current disasters in greater Sydney. “Confidence in rural areas generally was quite resilient in the survey, probably reflecting the encouraging developments in agricultural commodity prices and growing conditions across wider rural Australia,” Evans said.
However, confidence in Brisbane plummeted 11.2%, contrasting with Melbourne which has been unaffected by the floods where confidence was down only 3.4%. “The latest monthly fall comes as no surprise with the war in Ukraine, the floods, ongoing concerns about inflation and higher interest rates all likely to impact confidence, although the size of the decline is still notable,” he said.
Special questions in the latest survey highlighted the economy as the main area of concern but it was inflation news that has really exploded. A year ago, just 8.6% of respondents recalled news on inflation and that proportion jumped to 38.7% in March, a 14-year high.
All five sentiment sub-indexes recorded declines including the ‘time to buy a major household item’ that fell 4.4% as prices of many imported goods rose in response to the disrupted supply chains and a sharp surge in freight costs.
Another eye-catching aspect of the survey was the 10.8% fall in the house price expectations index with the weakness across all major states, with NSW (12.9%) and Western Australia (14%) showing the largest declines.
The Reserve Bank Board meets on April 5 and is currently in a holding pattern, awaiting more data, particularly on inflation, wages growth and unemployment.
Westpac holds the view that the first move in the inflation cycle will be on August 2, following two inflation reports on April 27 and July 27. “We expect that the April 27 inflation report and the May 18 wages report will motivate the Reserve Bank to gradually moderate their current ‘patient’ policy stance during June and July in preparation for the August move,” Evans said.