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RBA cut, cheaper petrol, and sharemarket boosting Consumer Sentiment

The Reserve Bank of Australia’s recent interest-rate cut, cheaper petrol prices, and a stronger sharemarket performance have been highlighted as contributing factors towards an 8 per cent rise in consumer optimism, according to the latest Westpac Melbourne Institute Index of Consumer Sentiment.

The Index revealed Consumer Sentiment rose to 100.7 points in February, an 8 per cent rise from the 93.2 points registered in January. This is the highest level the Index has seen in the past 12 months.

“This is a much stronger result than we had expected. It represents the first time since February last year that we have seen a majority (albeit miniscule) of optimists over pessimists. It is also the highest level of the Index since January last year,” Westpac Chief Economist Bill Evans said.

“It is probably best to assess the progress by noting that the level of the Index is now 1 per cent above its reading in April last year. That was the last reading prior to the May Budget after which the Consumer Sentiment Index plummeted 6.8 per cent. Up until today, confidence had struggled to make up any ground following that shock.”

Mr Evans said the Reserve Bank’s unexpected cash rate cut of 0.25 per cent demotes the idea that rate cuts in a low rate environment could be considered negative.

He added that, along with the 21 per cent fall in the average price of petrol in the last two months, the 9.7 per cent rise in the share price index since the January survey also played a strong hand in the confidence rise.

Mr Evans said it was thought the recent political disorder would play a part in the results.

“One concern around today’s results was whether the unrest in Government would weigh on sentiment,” Mr Evans said.

“It certainly showed in a sharp fall in the confidence amongst Coalition voters but confidence of ALP supporters, third party voters and the ‘undecided’ was boosted sufficiently to deliver the overall positive result.”

While acknowledging the positive signs changing “previously pessimistic readings”, Anna McPhee, Australian National Retailers’ Association (ANRA) CEO, said consumers are still guarded with spending and more effort needs to be put in the retail sector.

“Consumers remain wary of their employment prospects which continues to impact confidence and spending decisions,” Ms McPhee said.

“It continues to be a wait and see whether more needs to be done to rebuild confidence before we see further improvements to activity in the retail sector and the recurring benefits this delivers to the economy more broadly.”

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Guillermo Troncoso

Guillermo Troncoso

Guillermo is the Editor of Dynamic Business and Manager of film &amp; television entertainment site ScreenRealm.com. Follow him on <a href="https://twitter.com/gtponders">Twitter</a>.

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