Consumers are not convinced the Reserve Bank has finished hiking interest rates, despite leaving the cash rate unchanged last month.
The mood as captured by Westpac and the Melbourne Institute every month soured further after the July rate pause, with the weekly index assembled by ANZ and Roy Morgan also falling after last week’s decision.
The central bank opted to keep interest rates steady at 4.1 per cent when the board met last week.
Westpac chief economist Bill Evans said the decision to pause did not seem to resonate with consumers.
“Notably, most commentators described the RBA’s July decision as a temporary pause,” he said.
Mr Evans said the same thing happened when the RBA held rates steady in April, which proved to be a short-term pause rather than the end of the hiking cycle.
Overall, consumer sentiment improved from 79.2 in June to 81.3 in July, with the bulk of that improvement in the wake of a sharp pullback in inflation.
The Australian Bureau of Statistics recorded a steep decline in the monthly consumer price index for May, falling to 5.6 per cent from 6.8 per cent in April.
Confidence levels have been deeply pessimistic for more than a year, holding in the weak range of 78 to 86 since the first half of 2022.
Sentiment dropped off long before consumers started changing their spending habits, but discretionary spending has started to weaken more recently.
The household spending intentions index, based on Commonwealth Bank spending data as well as loan application and Google trends data, fell 1.7 per cent in June.
The index recorded a sharp pullback across discretionary, or non-essential, spending, with entertainment and travel sinking over June.
CBA chief economist Stephen Halmarick said households were feeling the squeeze.
“Although the RBA held interest rates steady in early July, monetary policy in Australia is highly restrictive and this is expected to see ongoing softness in household spending in the months ahead,” he said.
Mr Halmarick said interest rate hikes hit with a lag, and conditions for households would tighten further well into 2024.
Poppy Johnston
(Australian Associated Press)
