Australia’s Households Remain Pessimistic on RBA Rate-Rise Fears

Australia’s consumers remained downbeat in June, reflecting concern that persistent inflation could prompt the Reserve Bank to resume raising interest rates.

Sentiment edged up 1.7% to 83.6 points, still far below the 100 dividing line between pessimists and optimists, a Westpac Banking Corp. survey showed Tuesday. Pessimists have been in the ascendancy since March 2022.

Despite the improvement, sentiment remains “firmly in deeply pessimistic territory,” said Matthew Hassan, a senior economist at Westpac. “The survey detail suggests positives from fiscal support measures are being negated by increased concerns about inflation and the outlook for interest rates.”

Household finances are being squeezed by rising prices and high borrowing costs, which currently stand at a 12-year high. The RBA, at its meeting last week, discussed the case to raise rates further before deciding to stand pat at 4.35%. Governor Michele Bullock warned at the time that further policy tightening can’t be ruled out.

Highlighting the impact of the RBA’s message, the survey showed respondents were more upbeat prior to the rate announcement than following the release. “The implication is that some consumer hopes of a more positive message on inflation and the interest rate outlook were again dashed,” Hassan said.

Still, there is relief on the horizon for Australians, with tax cuts and energy rebates for households due to begin next week.

The RBA raised rates by 4.25 percentage points between May 2022 and November 2023, the most aggressive tightening cycle in a generation as it tries to regain control over inflation.

The central bank’s goal is to bring consumer prices back within its 2%-3% target while holding onto significant job gains made since the pandemic. Investors and policy makers will be closely watching monthly inflation data for May that’s due on Wednesday.

Westpac’s survey also showed:

• The family finances vs a year ago sub-index recorded a strong 9.7% lift in June, though at 69.3 it remains at a very weak level
• The time to buy a major item subindex also recorded a solid 4.2% rise but remained weak at 79.7
• The time to buy a dwelling index fell 4.8% to 72.8, returning to recent lows and in the bottom 5% of readings recorded since the mid-1970s

“The main takeaway here is that while pressures on family finances and purchasing power may be starting to ease, it would require much bigger, double-digit gains in these subindexes, before we could start to say that these issues have convincingly subsided,” Hassan said.

Resource: finance.yahoo.com