Commentary Directory

The consumer sentiment index shows a slight uptick but remains in pessimistic territory at 82, up from 79.7, indicating that consumer spending is likely to continue contracting. High inflation and concerns about future rate hikes are overshadowing any positive feelings about family finances and job prospects. Despite the Reserve Bank of Australia's pause on rate hikes, 63% of surveyed consumers still expect mortgage interest rates to rise in the next year, a sharp increase from 52.3% in September. Interestingly, the expectation of rate hikes is more prevalent among freehold homeowners and older households, possibly indicating hopes for better returns on deposits rather than fears of mortgage rate hikes. While there's a glimmer of hope in labor market conditions and a 7.6% surge in the 'time to buy a major household item' sub-index, overall consumer sentiment remains cautious and downbeat.

Australian consumer sentiment has been drifting near the lows seen during the Global Financial Crisis for some time now. It is hard to detect whether the slight pick up in October is significant to a broad uptrend or just more near-term volatility. There does seem to be an improvement in sentiment in response to the pause in rate hikes by the RBA, but there is a slight renewal in expectations that rates will still go up, likely in response to a higher-than-expected CPI reading. With that being said, don’t expect consumer sentiment to improve in Q4. The index will likely be stuck between 80-85 for the next 6-8 months as the inflation situation gets sorted.