Consumer sentiment
- Consumer sentiment: The ANZ-Roy Morgan consumer confidence rating fell by 6.0 per cent to 112.3 in the past week – the largest fall since the week ended May 20 2012. The index is below the average of 114.2 held since 2014 and below the longer-term average of 113.0 held since 1990.
- Inflation expectations: Consumers’ inflation expectations over the next two years rose from 4.5 per cent to 4.8 per cent last week – the highest reading since the week ended November 29 2015.
The consumer confidence figures have implications for retailers, and other consumer-focussed businesses.
What does it all mean?
- Consumer confidence ebbs and flows. The week before last, sentiment was the best since July and consumer views about the state of their finances was at the highest level for over nine months.
- But sentiment dipped by the most in six years last week after the Morrison government likely lost its one seat majority in the House of Representatives following the Wentworth by-election on Saturday. Consumers (and businesses) don’t like political uncertainty, as also evidenced by the outsized plunge (down 3.5 per cent over the week ended August 19) in sentiment due to the Liberal Party leadership spill two months ago.
- In terms of financial markets, the Aussie dollar was stable last week against the greenback, consolidating around US71 cents. And after a turbulent start to October, the Aussie sharemarket (S&P/ASX 200 index) rose by 0.7 per cent over the week to October 19.
- That said, petrol prices came into sharper focus with the Australian Institute of Petroleum’s national average price of unleaded petrol rising in the past week by 1.8 cents to 159.3 cents a litre – the highest level for over a decade (highest prices since the week to July 27 2008).
- In the September quarter, petrol rose by 1.7 per cent after lifting 6.9 per cent in the June quarter. So higher fuel prices are adding to inflation directly (at the pump) and indirectly (through transport costs). Therefore, next week’s September quarter inflation print is likely to show fuel prices adding around 0.06 percentage points to overall consumer prices. With this front-of-mind, consumers’ expectations for inflation over the next two years rose by the most since late November 2015.
What do the figures show?
Consumer Sentiment
- The ANZ-Roy Morgan consumer confidence rating fell by 6.0 per cent to 112.3 in the past week – the largest fall since the week ended May 20 2012. The index is below the average of 114.2 held since 2014 and below the longer-term average of 113.0 held since 1990.
- All five components of the index decreased last week:
- The estimate of family finances compared with a year ago was down from +13.8 to +5.7;
- The estimate of family finances over the next year was down from +27.6 to +23.3;
- Economic conditions over the next 12 months was down from +5.9 to +0.2;
- Economic conditions over the next 5 years was down from +14.7 to +7.2;
- The measure of whether it was a good time to buy a major household item was down from +35.6 to +25.0.
- The measure of inflation expectations rose from 4.5 per cent to 4.8 per cent.
What is the importance of the economic data?
- The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.
What are the implications for interest rates and investors?
- Consumers remain optimistic on the back of a solid labour market and still-positive domestic economic backdrop. But their resolve will be tested in the lead up to Christmas – especially if petrol prices remain elevated, home prices continue to fall in Sydney and Melbourne, the Aussie dollar weakens further and variable mortgage rates are lifted.
- Political uncertainty is the biggest threat to business and consumer confidence. While Aussies are becoming increasingly used to hung parliaments, one concern is that businesses will stop investing and hiring, and consumers pull-back their spending in the lead up to the Federal election, due before May 18 2019.
- While consumers are contending with rising cost of living pressures – primarily from rising petrol, electricity and gas prices – in reality inflation is fairly benign. In fact, child care rebates should reduce overall inflation with Commonwealth Bank economists forecasting headline and underlying inflation to fall below the Reserve Bank’s 2-3 per cent target in the September quarter, keeping the Reserve Bank on the interest rate sidelines.
- CommSec expects no change in the official cash rate until late 2019.