Australian consumer confidence has fallen sharply following the Reserve Bank of Australia’s latest interest rate increase, adding to evidence that households are becoming increasingly cautious about the economic outlook.
The Westpac-Melbourne Institute Consumer Sentiment Index fell 4.7% in October to 80.4, its lowest level in six months and one of the weakest readings recorded over the past five decades.
A reading below 100 indicates pessimists outnumber optimists.
The decline follows the RBA’s decision to raise the cash rate by 25 basis points to 4.60%, its highest level in 15 years, as policymakers attempt to contain persistent inflation.
Household finances deteriorate
Consumers became considerably more pessimistic about their own financial position during October.
The measure of family finances compared with a year ago fell 8.0% to 66.9, while expectations for finances over the next 12 months dropped 6.4% to 88.4.
The index measuring whether now is a good time to purchase a major household item fell 7.1% to 83.0, suggesting consumers may increasingly delay discretionary purchases.
Concerns about employment also increased, with unemployment expectations rising 1.9%.
The figures could create another headache for the RBA.
Westpac expects policymakers to deliver another interest rate increase in November as elevated fuel costs and persistent underlying inflation remain concerns.
However, deteriorating consumer confidence suggests higher borrowing costs are already having a significant impact on households, increasing the risk that further tightening produces a sharper slowdown in spending and economic activity.
