Commenting on the result, ANZ’s head of Australian economics, David Plank noted:
Consumer confidence plunged 6.0% last week, its sharpest fall since the 7.6% drop in mid-January due to the Omicron surge. The strong inflation result of 5.1% y/y was likely the primary driver of the drop in confidence as it increases the prospect of interest rate hikes by the RBA in the near future. This is supported by the fact confidence dropped 9.6% amongst people ‘paying off their home loan’, while for people who already own their home or are renting confidence dropped by 4.7% and 4.2% respectively. Inflation expectations increased 0.2ppt to 5.3% last week as average petrol prices rose nationally.
This is the lowest level for consumer confidence at the start of a tightening cycle since the inflation targeting regime began in the early 1990s. This may see the RBA tighten more slowly than the market is pricing.
Expect confidence to collapse further into the gutter if the RBA hikes rates aggressively.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also Chief Economist and co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
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