Aussie consumer confidence tumbles into recessionary abyss

The weekly ANZ-Roy Morgan Consumer Confidence Index has fallen 1.2% and remains firmly at recessionary levels:

Roy Morgan consumer confidence

According to ANZ Head of Australian Economics, David Plank:

Consumer confidence decreased 1.2% last week, driven by a 4ppt increase in the number of respondents who think it is a ‘bad time to buy’ a major household item. A possible reason for this could be the conclusion of End of Financial Year sales. Expectations of a further increase in the interest rate by the RBA at its meeting today could be another reason behind the dampened sentiment. Household inflation expectations rose 0.2ppt to 5.9% last week, exactly reversing its fall the week before.

The next chart shows that inflation expectations have almost rebounded back to April’s peak before the federal government halved the fuel excise:

Inflation expectations

The next chart plots the consumer confidence index over the very long term, with confidence tracking at the lowest level since the early-1990s recession, not including the brief COVID downturn in early 2020:

Long-run consumer confidence

The RBA has never commenced a rate hiking cycle with consumer confidence already at recessionary levels. This spells bad news for the economy, since household consumption is the economy’s biggest growth driver.

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Comments

  1. Is a period of higher inflation so dangerous? Especially after a prolonged period of low inflation? Guy on 7:30 (?) last night said unemployment was 2x as damaging as inflation to an economy (don’t know who he was or the metrics he was quoting as literally just turned on). Makes little sense to me for our economy to be ground down by high rates trying to suppress supply side prices. The central banks seem to be scarred by the stories of the 70’s & Volcker they learnt in Uni when it may be wrong anyhow. Is running our economy hot for a bit really going to lead to an inflationary spiral we can’t control? Some higher inflation might spur automation, AI & other investment & innovation. Why isn’t the government working closely with the RBA to align policies to combat inflation, especially in energy, rather than smashing the economy with a blunt weapon! I feel like they are making a huge economic mistake.