Australian Consumer Sentiment Worsens in October- Westpac

By Ambar Warrick 

Investing.com– Australian consumer sentiment worsened in early-October, a survey showed on Tuesday, as an increased cost of living, laggard wage growth and rising interest rates dented the country’s economic outlook. 

The fell 0.9% to 83.7 in October from 84.4 in September, where it had seen a mild improvement, Westpac said in a statement. 

The index, which is compiled through a survey of 1200 respondents, is currently trending at lows seen during the 2020 COVID pandemic and the 2008 global financial crisis. 

Westpac (ASX:) noted that the reading would have been much worse for October if the had hiked interest rates by 50 basis points (bps), instead of the lower-than-expected 25 bps it delivered. Rising interest rates have been a key concern of Australian consumers this year, given their adverse effect on the mortgage and housing market. 

Westpac expects no quarter from the RBA on that front, and forecast at least four more consecutive 25 bps hikes in the coming months. 

Westpac also forecast little respite from inflation, which the bank expects to trend around 7.6% by the year’s end. Australian is currently around 6.1%, its highest level in two decades.

While optimism over household finances continued to improve, sentiment towards the labor market saw a “surprising deterioration,” Westpac said. More respondents to the survey said they expect unemployment to rise in the year ahead.

Australia’s labor market has been a key source of strength for the economy, with unemployment currently trending at near 50-year lows. This has also kept household spending and retail sales upbeat in the country, for now. 

But that trend may be reversed in the coming months, given that wage growth has largely fallen behind inflation. 

The Australian economy marked a sharp rebound in growth this year after lifting most COVID-related restrictions. But the RBA remains cautious over raising interest rates too quickly and stifling said rebound. 

Headwinds from rising inflation- particularly in food and fuel- are expected to keep pressuring the economy in the near-term. 

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