Reserve Bank of Australia's shock rate hold dampens the mood for Aussie shoppers, per Westpac's Consumer Sentiment Index
The latest Consumer Sentiment Index from Westpac and the Melbourne Institute ticked up 0.6 per cent to 93.1 per cent in July.
Based on a survey conducted from July 7 to 11, respondents reported an index read of 95.6 before the RBA held rates.
This dived to 92 after the central bank held the cash rate.
Westpac's head of Australian macro-forecasting Matthew Hassan said the reaction minimised what 'would probably have been a solid rise'.
'This is the third time since late last year that events have conspired to undermine promising improvements in the consumer mood,' Mr Hassan said in the report.
'Daily responses showed similar patterns in April (following the 'Liberation Day' tariff announcements) and back in November (when a milder RBA disappointment combined with a surprise US Presidential election result).'
The consumer sentiment index tracks family finances, expectations for the economy and whether Aussies believe now is a good time to buy a major household item.
Australians remain 'cautiously pessimistic' about the nation's economy as the index remains below positive territory (above 100).
The recent result, however, is still greatly above the consumer sentiment index scores of 82.7 in July 2024 and 81.3 in July 2023.
AMP economist My Bui said the weight of post-pandemic inflation had weighed on household budgets and hurt consumer confidence.
'The main reason for why consumer sentiment has been negative for so long (more than three years, the most outside of recessions) is because of very sluggish readings in family finances since the end of 2020,' Ms Bui said in a statement.
'Unsurprisingly, wage earners are still worse off than 2020 given that the rise in price levels (+20 per cent) has outpaced wages growth (+15 per cent).'
Credit reporting agency CreditorWatch pointed to Donald Trump's trade war for the lower than expected consumer confidence increase.
'Tariff related uncertainties about the longer-term outlook for the economy are also restraining confidence somewhat, though even abstracting from this effect, consumers would still be slightly net pessimistic about the economy,' it said.
The Reserve Bank of Australia earlier this month held the cash rate at 3.85 per cent, subverting widespread expectations it would cut rates by 25 basis points.
This would have been the first consecutive rate cut since early 2020 and the third cut this year.
Whether the RBA cuts rates at its next meeting in August depends on what the trimmed mean inflation figure for the June quarter is.
RBA governor Michele Bullock said the shock hold was about 'timing' as the central bank needed more concrete information about how inflation was continuing to decline.
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