Inflation fears, rates concerns weigh on confidence despite up-beat budget

Fears of hard-to-budge inflation and the possibility of another interest rate hike appear to be weighing on consumer confidence and countering the mood boost of a fairly well-received federal budget.

May 21, 2024, updated May 21, 2024
The last couple of retailing days might help turn round a difficult year for business. (AAP Image/Dan Himbrechts)

The last couple of retailing days might help turn round a difficult year for business. (AAP Image/Dan Himbrechts)


For two years, consumer confidence surveys have uncovered deep pessimism, reflecting stretched household budgets in the face of high living costs, elevated interest rates and a growing tax take.

The latest update from Westpac and Melbourne Institute, which sampled the populace following stronger-than-expected March quarter inflation data as well as last week’s federal budget, showed a modest 0.3 per cent decline in the overall index.

This followed falls across the past two readings, with consumers at their most confident back in February.

Westpac senior economist Matthew Hassan said consumer sentiment remained deeply pessimistic.

“While expectations improved a touch in May, this was overshadowed by a further deterioration in current conditions and fears that persistently high inflation may require further interest rate rises,” Mr Hassan said.

In March, quarterly inflation data came in above expectations and had the Reserve Bank “vigilant” to resurgent price pressures at the May meeting.

While the central bank left interest rates unchanged again that month, hopes of an interest rate cut were pushed back and some analysts warned another increase was not out of the question.

As is typical of confidence surveys around federal budgets, sentiment lifted heading in and fell afterwards, which suggested some disappointment.

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“Although a closer reading of the survey suggests this may have been more around the difficult economic context that the budget highlighted than its content,” Mr Hassan said.

As flagged ahead of budget day, Australians were granted cost-of-living relief in the form of universal energy bill rebates and boosted Commonwealth rent assistance.

While known ahead of time, taxpayers are also in line for relief when the stage three tax cuts start midway through the year.

When compared to polling conducted in other years, consumers were more likely than usual to say the budget would improve their personal finances, or at least not prompt a further deterioration.

“With the exception of the big stimulus budgets of the COVID period, this is the least negative response we have seen in the last fourteen years,” Mr Hassan said.

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