Consumer confidence increased 1.6% last week after a 7.6% decline the week before. News about the strength of the labour market may have boosted sentiment, but it remains deeply pessimistic. Household inflation expectations jumped 0.3ppt to 5.9% as average petrol prices increased over the week. The ‘current’ and ‘future economic conditions’ subindices dropped for a third consecutive week, as central banks across the world, including the RBA, became increasingly hawkish about bringing inflation under control, causing uncertainty about economic growth.
The next chart shows that inflation expectations have almost rebounded back to April’s peak before the federal government halved the fuel excise:
The next chart plots the consumer confidence index over the very log term, with confidence tracking around the lowest level since the early-1990s recession:
The Reserve Bank has never commenced a rate-tightening cycle with such low consumer confidence. This spells bad news for the economy, given household consumption is the economy’s biggest driver.
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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