The Westpac-Melbourne Institute Index of Consumer Sentiment fell 0.9% in April, a modest decline from the sharp 4.2% fall in March, but its lowest read since September 2020, when Covid concerns dominated.
“There is evidence that interest rates, inflation and weather continued to unnerve consumers in the current survey,” Westpac chief economist, Bill Evans said. “Confidence amongst respondents with a mortgage fell 9.2% in April amid concerns that the Reserve Bank will be raising the cash rate earlier than previously expected and at a faster pace,” he said.
The prospect of interest rate rises may have buoyed sentiment across some sub-groups that stand to benefit, such as those aged over 65 and amongst freehold homeowners.
However, further evidence of the impact of inflation on confidence came from the 5.3% fall in the ‘time to buy a major household item’ sub index. This index is now 22% below its long-term average and has fallen by 10.7% in the last six months. The weakening occurred across nearly all the 30 sub-groups monitored. “This is a strong indication that the decline is being driven by a broad-based factor such as rising prices,” Evans said.
Consumer views on the economy improved, particularly for the near- term outlook with the economy, next 12 months’ sub-index posting a 5.8% recovery although still down on its level in February. The labour market meanwhile remains a strong cornerstone for confidence with the unemployment expectations index improving 2.5% in April.
“Conditions in the housing market were mixed with buyer sentiment holding steady at weak levels with price expectations softening while remaining in positive territory overall,” Evans said. “High prices, rising fixed mortgage rates and the expectation of rises in variable mortgage rates continue to weigh on affordability and confidence in the housing sector.”