This article is from the Australian Property Journal archive
SPECULATION of an interest rate cut and falling petrol prices have underpinned a bounce back in consumer in August.
The Westpac Melbourne Institute consumer sentiment index rose 9.1% from 79 points to 83.8 after slumping 6.7% in July and falling 5.6% in June.
However, the index remains 32% lower than its May 2007 peak – below the 100 points level, where the number of optimists equals pessimists.
JPMorgan’s economist Helen Kevans said the improvement in confidence emerged amid falling petrol prices (down 8% over the last month), growing speculation that the Reserve Bank will cut interest rates this year, and the personal income tax cuts delivered from July 1.
“In particular, high petrol prices have a major dampening impact on sentiment – in the three months prior to August, official interest rates had been stable but petrol prices spiked 15%, leading to a sharp fall in consumer confidence from nearly 90 to just 79,” she added.
The index shows sentiment fell in only one of the five categories. Sentiment towards the economy in five years’ time was 3.7%.
And in response to growing speculation of a rate cut was imminent there was a significant improvement in sentiment toward family finances, up 18% from a year ago. In addition, sentiment over family finances in the year ahead were up 16.9%, and the economy in one year’s time (+14.8%). Sentiment toward whether now is a good time to buy a major household item improved (+4.1%).
Kevans said the outlook for consumer confidence depends largely on whether petrol prices continue to fall and whether the RBA cuts interest rates this year.
“The RBA is widely expected to cut interest rates at its September meeting. Our forecast calls for a 25bp rate cut.
“We believe RBA officials’ desire to avoid an inflationary plunge in AUD rules out a 50bp cut. The Aussie dollar has slipped from $0.9445 at the start of August to $0.8679 currently,” she concluded.
Australian Property Journal
