ANZ-Roy Morgan’s weekly consumer confidence index has crashed by 4.5% to its lowest level since April 2020. This follows the Reserve Bank of Australia’s (RBA) third consecutive 0.5% rate hike last Tuesday:
Australian consumer confidence crashes after latest rate hike.
Key points from the release are as follows:
- Consumer confidence sank 4.5% last week, more than offsetting the gains over the previous three weeks. Confidence fell across all the mainland states with major declines in NSW, SA and WA.
- ‘Weekly inflation expectations’ increased 0.1ppt to 5.6%, while its four-week moving average fell 0.1ppt to 5.7%.
- All the five confidence subindices declined. ‘Current financial conditions’ dropped 1.9%. ‘Future financial conditions’ decreased 5.5% reversing the 5.3% gain the week before.
- ‘Current economic conditions’ plunged 10.2%, falling to its lowest level since September 2020. ‘Future economic conditions’ lost 2.1% after a 3.6% increase the week before.
- ‘Time to buy a major household item’ decreased 4%.
Commenting on the result, ANZ’s head of Australian economics, David Plank, noted that mortgage holders drove the overall plunge in confidence:
Consumer confidence declined 4.5% last week, to its lowest levels since April 2020, as the RBA increased interest rates by 50bp for the third month in a row to 1.85%. Household inflation expectations increased 0.1ppt to 5.6% despite petrol prices falling for a fourth consecutive week. Demand for housing has been dropping, along with house prices. That and rising interest rates caused confidence among homeowners to drop 7% last week.
So far in 2022, household spending has been robust despite very weak consumer sentiment, with strong employment gains, high levels of household saving and a desire to travel more than offsetting concerns about the rising cost of living. It remains to be seen whether this divergence between confidence and spending can continue. Certainly, we expect employment to remain robust through 2022 and wages growth to pick up. This may be enough to keep households spending, even if they feel wary about the outlook.
The next chart plots Australia’s consumer confidence over the long-run, and shows that confidence its tracking at its lowest level since the early 1990s recession, outside the brief dip at the beginning of the pandemic:
Consumer confidence at recessionary levels.
Never before has the RBA commenced a rate tightening cycle with consumer confidence already at recessionary levels.
The lunatic RBA needs to tread carefully on further rate hikes. Because if it keeps hiking rates so aggressively, it risks plunging the economy into a consumer-led recession.
