One word best sums up the mood of the Australian consumer as 2024 gets under way: stressed.
The Westpac–Melbourne Institute Consumer Sentiment Index remains stuck at very weak levels, running around 20 per cent below its long-term average as cost-of-living pressures continue to dominate.
Concerns centre around family finances and how those pressures are weighing on disposable incomes.
The “time to buy a major item” sub-index is languishing at historic lows after falling 5.4 per cent in the three months to January, while the “time to buy a dwelling” component dropped 5.3 per cent.
Risk aversion among consumers also remains high. The Westpac Risk Aversion Index rose 3.1 points to 57.2 in December, marking the second highest read since the start of the survey in the mid-1970s. Consumers are more inclined to favour deposits, in part reflecting the higher interest rates on offer.
So far, we haven’t seen much improvement in sentiment off the back of better news on inflation and interest rates. That may start to feed through as inflation returns closer to the RBA’s 2-3 per cent target range, and of course we also have Stage 3 tax cuts scheduled to come in from July.
More good news on the economy may help to turn the dial on sentiment, but it still looks like quite a challenging outlook. Even as inflation stabilises, cost of living is still going to be high relative to incomes for several years to come.
Beyond an initial rebound in sentiment, that we still haven’t seen yet, it could be a long, slow recovery path for consumers over the next couple of years.
To read Matt’s full report, visit the WestpacIQ website.
Matthew is a senior economist with Westpac. His specific areas of expertise are housing markets and the Australian consumer sector. Matthew’s research has been instrumental in shaping Westpac’s views on the Australian economy, including recent calls on official interest rates. His research has provided important insights into housing market developments and the behaviours of the Australian consumer. He is the author of Westpac’s monthly Red Book report, regards as essential reading on the consumer sector. Before joining the Westpac team in 2007, Matthew held senior positions with leading economic consultancies in Australia and New Zealand.
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