The Westpac-Melbourne Institute Index of Consumer Sentiment fell 1.3% in February. However, it was met with some surprise from Westpac chief economist, Bill Evans who said that given the easing of health disruptions from Omicron and a strengthening of the labour market there would have been some improvement in the Index in February.
“While the ‘economy, next 12 months’ sub-index increased 2.4% and the ‘economy, next 5 years’ sub-index was up by 1.5%, these were more than offset by increased pressure on family finances,” Evans said. “And both components of the Index that measure respondents’ assessments of their finances deteriorated, with the ‘finances vs a year ago’ sub-index slumping 9.2%.”
He said the most likely explanations for these elevated pressures on finances relate to Omicron disruptions to activity and earnings at the start of the year, the rising cost of living and the prospect of rising interest rates. Housing-related sentiment had a mixed month, with price expectations lifting, but buyer sentiment slipped to remain near 14-year lows.
“Westpac does not expect the first rate hike by the Reserve Bank until August and it will be interesting to observe how resilient consumer confidence will be in the lead-up to the first move. “At one point, markets had been toying with the idea of a rate hike as early as March but have now backed off, but we still expect a 25bp increase by June,” Evans said.