Matthew Hassan

The Westpac-Melbourne Institute Index of Consumer Sentiment rose 2.9% to 82 in October, up from 79.7 in September.

Westpac Senior Economist Matthew Hassan said: “The consumer mood has improved slightly but optimism remains in extremely short supply. At 82, the latest Index read is still in deeply pessimistic territory, consistent with a continuation of the contraction in per capita spending seen since late last year. While there are some faint glimmers of hope around family finances and the outlook for jobs, these are being overshadowed by still-high inflation and renewed rate rise concerns.

“The RBA’s extended pause on rate hikes continues to see only a muted lift in sentiment. The headline Index is up only 3.7% since the last rate rise in June, and sentiment amongst households with a mortgage is only up 5.9%.

“Consumers remain wary of the potential for more rises in the months ahead. Amongst those surveyed after the October RBA decision, 63% still expect mortgage interest rates to rise over the next year, up sharply from 48% in September (albeit below the 70-80% reads seen when the RBA was actively hiking). Only 7% of consumers expect rates to be cut over the next year, down from 15% in September.

“Some of the increase in this expectation likely relates to the surprise jump in the monthly CPI indicator, which showed annual inflation moving back above 5% in August. However, the detailed survey responses point to a slightly more nuanced picture here. Across sub-groups, the latest increase in interest rate expectations has been driven by freehold homeowners and older households rather than households with a mortgage. As such, it may be more about hopes of improved returns for the ‘deposit belt’ than fears of further rate hikes for the ‘mortgage belt’.”

Read the report.

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