Consumer confidence jumps 7.5% thanks to rate cuts and petrol prices

Australian consumers appear to be shrugging off fears of a recession and rising unemployment, with the Westpac-Melbourne Institute Index of consumer confidence jumping 7.5% in December

Australian consumers appear to be shrugging off fears of a recession and rising unemployment, with the Westpac-Melbourne Institute Index of consumer confidence jumping 7.5% in December.

Consumer confidence has now increased 12.1% in the last two months. The index now sits at 92 – still below the 1000-point mark that separates the pessimists from the optimists, but well up on the 2008 low point of 79 points recorded in July.

Westpac’s chief economist says Bill Evans says interest rate cuts and a big slide in the price of petrol are finally lifting the sprits of households, but he remains surprised at the size of the rise in December.

“It was not obvious that the consumer sentiment index would have shown such a significant jump. The gloom surrounding the global economy and the associated threat to Australia could have easily overwhelmed all the positives.

“The good news on interest rates is finally getting some traction.”

The optimism was widespread. The “Time to Buy a Dwelling” index jumped 39.4% in the fourth quarter to hit the highest point since March 2002, when the housing boom was in full swing. The “Time to Buy a Car” index climbed 28.8%.

Perhaps most significantly for retailers was the 28.2% jump in positive sentiment towards buying a major household item.

Evans expects the RBA to cut rates by 0.5% when it meets in February, which would take the official cash rate down to 3.75%.

And that is unlikely to the end of the cuts.

“We assess that with US rates likely to reach zero and European rates 1%, there is ample scope for Australia to cut rates to below 3%.”