The Westpac-Melbourne Institute Consumer Sentiment Index fell 1.0% in December but remains in positive territory and optimism prevails. 

There was a clear difference in responses between the states hit hardest by recent Delta outbreaks and the rest of Australia, Westpac chief economist Bill Evans said, with both NSW and Victoria posting significant falls, down 3.6% and 3.5% respectively. Sentiment rose 3.4% in Queensland, 3.2% in WA and 7.1% in SA.

“A positive national index is very important for the strong growth outlook we see for 2022 which is dependent on a surge in consumer spending, as households re-emerge from restrictions and draw down on the large savings accumulated through Covid lockdown periods,” Evans said.

“The December survey detail suggests there are other reasons, aside from the recent developments around Omicron, making consumers somewhat more cautious and here the news was mixed, with a sharp increase in awareness of inflation. In December 2020 only 5% of respondents recalled any news on inflation but this has lifted to 21%, exceeded only by news on employment (33%) and economic conditions (32.5%).”

A sharp fall in the ‘time to buy a major household item’ index Evans said probably reflected a lift in virus-related concerns, along with other factors such as supply bottlenecks, price increases and some degree of saturation. “Spending patterns have been strongly biased in favour of purchases of durables over services during Covid.”

There was also a retreat in the ‘time to buy a dwelling’ index, which slumped 10.2%, following a 9.4% surge last month. “The December print confirms the downward trend in this index since late last year as affordability continues to be squeezed in all markets,” he said.