By Ambar Warrick
Investing.com-- Australian consumers grew grimmer over the economy in early November, a Westpac survey showed on Tuesday, as rising inflation, high interest rates, and laggard wage growth greatly weighed on spending power in the country.
The Westpac Melbourne Institute Consumer Sentiment Index fell 6.9% this month, far more than last month’s decline of 0.9%. The reading was its worst drop in over two years, and also saw the index slump to historical lows of 78.0.
The reading comes after data recently showed that Australian inflation surged to a 32-year high in the quarter to September, while the Reserve Bank also forecast that inflation will likely rise further in the remainder of the year.
The central bank hiked interest rates by 25 basis points in November, which caused a marked decline in consumer confidence, even though the raise was smaller than the RBA’s moves earlier this year.
The bank signaled that it was trying to strike a balance between combating inflation and ensuring that the economy was not impacted by high interest rates. The housing market in particular has been severely affected by rising rates this year, which factored into the decline in consumer sentiment.
Smaller interest rate hikes by the RBA appear to have done little to support sentiment, as the government’s latest budget also appeared to be a source of anxiety for consumers.
The budget flagged higher electricity costs and more immediate pressure on household finances, which are already reeling from the effects of high inflation this year.
The RBA also signaled that interest rates will continue to rise in the near-term, given that inflation has shown no signs of cooling.
To this end, the central bank also trimmed its GDP forecast for 2022.
While the labor market has so far remained robust in Australia, Tuesday’s survey showed that consumers were becoming less confident over the outlook for jobs. Unemployment expectations increased amid laggard wage growth.
Consumer spending was a key driver of Australia's economic growth this year, after the country lifted most COVID-related restrictions. But worsening sentiment may indicate that the trend could change in the near-term, signaling headwinds for the Australian economy.