No January RBA Meeting Boosts Consumer Sentiment

Westpac’s measure of consumer confidence rose 5% m/m, the second consecutive month increase, in January to 84.3, the highest level since September and highest monthly rise since April 2021. But according to Westpac, the index is still in the lowest 10% of observations since the mid-1970s. While it remains depressed, it appears to have reached a trough, which should ease some of the RBA’s concerns.

• The survey was conducted during the second week of January. The fact that there wasn’t a January RBA meeting and thus no further rate increases this month probably boosted consumer confidence. This improvement may prove temporary as a further 25bp hike is expected at the February 7 meeting.
• The share of those expecting rates to rise by at least another 1% fell to 48% in January from 60% in November. This is likely to fall further as the RBA approaches the end of its tightening cycle and inflation pressures ease through 2023, which is likely to help confidence recover, as reflected by the more forward looking components of the Westpac survey.
• Petrol prices fell 3.3% during the survey week, which may have also helped to drive the improvement. The release of higher than expected CPI inflation didn’t appear to impact confidence.
• Unemployment expectations have been volatile recently but fell 8.4% m/m in January and are 16.5% below their long-term average pointing to ongoing tight labour market conditions.
• Through the volatility, house price expectations are resilient. They fell 10.3% in January after surging 27.6% last month and are still 7.7% above the August to November average.

Source: MNI - Market News/Refinitiv/Westpac