Consumer inflation expectations hit 15-week high

Consumer confidence; CBA Household Spending Intentions (HSI)

• The weekly ANZ-Roy Morgan consumer confidence index fell by 2.5 per cent to 81.6 (long-run average since 1990 is 112.4). Consumer inflation expectations over the next two years hit a 15-week high of 6.0 per cent.
• The Westpac-Melbourne Institute consumer sentiment index fell by 3.0 per cent in July – a seventh successive monthly decline in 2022 – to a 23-month low of 83.8 points, down 23.0 per cent on a year ago.
• Commonwealth Bank (CBA) economists reported the CBA Household Spending Intentions (HSI) index rose by 0.9 per cent in June to an equal record high of 117.3 points. The largest gains were in transport, education and household services.

What does it all mean?

• Inflation and interest rate concerns continue to dominate consumer confidence surveys. The Reserve Bank of Australia (RBA) hiked the official cash rate by another 50 basis points (bp) to 1.35 per cent at its July 5, 2022 Board meeting. And unleaded retail petrol prices hit record highs in Adelaide, Darwin and Melbourne at the beginning of July. Persistent worries about falling home prices and sharemarkets also likely weighed on sentiment.
• In the first of two consumer confidence surveys released today, sentiment, as measured by ANZ and Roy Morgan, fell by 2.5 per cent last week to 81.6 points. ANZ economists reported, “The RBA’s 50bp rate hike last week weighed on sentiment, with confidence falling for those people paying off a mortgage by a sharp 5.4 per cent.”
• According to the Australian Institute of Petroleum (AIP), the national average unleaded petrol price rose by 1.0 cent to 212.1 cents a litre (c/l) last week – just below the record high of 212.5c/l on March 20, 2022. With pump prices hovering near record highs, consumer inflation expectations over the next two years hit a 15-week high of 6.0 per cent.
• And in a second survey conducted by Westpac and the Melbourne Institute, consumer confidence fell by 3.0 per cent in July to a 23-month low (since August 2020) of 83.8 points.
• The survey was conducted in the week July 4-7, 2022, capturing the RBA’s latest rate hike. In response, Westpac economists said, “Sentiment amongst those polled after [the RBA’s July rate hike] was 7.4 per cent below that of those surveyed before the decision.”
• Westpac economists also asked respondents about their expectations for standard variable mortgage rates as the RBA tightens monetary policy. The economists reported, “Amongst those surveyed just after the RBA decision in June, 64.7 per cent expected the rate to lift by more than 1.0 percentage point over the next twelve months. That proportion increased to 72.8 per cent for those surveyed after the RBA’s July move, despite the materially higher starting point.”
• With pessimists getting the upper hand in the survey, consumer views on their finances and economic conditions broadly deteriorated in July. Consumer views on the ‘economy, the next 12 months’ sub–index fell by 4.2 per cent and the ‘economy, next 5 years’ sub–index dropped 6.7 per cent. And consumer views on their ‘finances versus a year ago’ sub-index fell by 2.8 per cent, but the ‘finances, next 12 months’ sub-index edged up by 0.1 per cent.
• And while consumer spending has been resilient in the face of rising cost of living pressures, consumer views on whether it is a good ‘time to buy a major household item’ dipped by 0.9 per cent to 88.8 points in July, the lowest level since April 2020 and near historic recessionary levels.
• Rising cost of living pressures are starting to weigh on younger Aussies. Sentiment – for surveyed Aussies aged 18-24 years – fell by 7.3 per cent in July to an 11-month low of 108.3 points. And confidence for those aged 25-44 years dipped by 3.0 per cent to a 23-month low of 93.7 points. Sentiment for those aged over 45 years fell 0.8 per cent to a 23-month low of 71.3 points.
• That said, Aussie consumers remain confident about the labour market, with the Westpac-Melbourne Institute ‘unemployment expectations’ index at very low levels, lifting (deteriorating) by just 1.1 per cent in July to 109.8 points, well below the long-run average of 130 points. Economists expect the unemployment rate to fall to a fresh 48-year low of 3.8 per cent in June, when the latest labour force survey is released tomorrow.
• The CBA’s forward-looking Household Spending Intentions (HSI) index, compiled using internally generated transaction and lending data with publicly available Google search terms, rose by 0.9 per cent in June to an equal record high 117.3 points in June.
• Eight out of 12 HSI categories recorded gains last month, led higher by transport, education and household services. But spending intentions fell in the interest rate sensitive retail, home buying categories. But with the RBA hiking interest rates and price pressures building, economists and retailers are likely to pay even closer attention to the HSI’s home buying, motor vehicles, retail and entertainment categories in the coming months.

What do you need to know?

Weekly consumer sentiment – July 10

•  The weekly ANZ-Roy Morgan consumer confidence index fell by 2.5 per cent to 81.6 (long-run average since 1990 is 112.4). All five major sub-components fell last week:

Monthly consumer confidence – July

• The Westpac-Melbourne Institute Index of Consumer Sentiment fell by 3.0 per cent in July – seventh successive monthly decline in 2022 – to a 23-month low of 83.8 points, down 23.0 per cent on a year ago.
• Four of the five major components of the index fell in July.
• Of the other key sub-components in July:
  • The ‘time to buy a dwelling’ index rose by 6.6 per cent to 80.1 points.
  • The ‘house price expectations’ index dipped by 5.6 per cent to 104.9 points.
  • The ‘unemployment expectations’ index rose (deteriorated) by 1.1 per cent to 109.8 points.
• The survey was taken over the period July 4-7, 2022.

The Commonwealth Bank (CBA) Household Spending Intentions (HSI) index – June

• Commonwealth Bank (CBA) economists reported the CommBank Household Spending Intentions (HSI) index rose by 0.9 per cent to an equal record high 117.3 points in June. The index is up 11.9 per cent on a year ago.
• Eight out of 12 HSI categories recorded gains in June, led higher by transport, education and household services. But spending intentions fell in the retail, home buying a categories.