Australia | Oct 11 2006
By Rudi Filapek-Vandyck
Concerns about two interest rate hikes pushing Australian consumers into a worried state appear to lack substance with the latest Westpac-Melbourne Institute Index of Consumer Sentiment showing consumer confidence in Australia remains very healthy.
The Westpac-Melbourne Institute Index of Consumer Sentiment rose by 3.9% in October from 101.2 in September to 105.2 in October. The index is now only 3% below the average level of the twelve months before the Reserve Bank of Australia (RBA) again started raising interest rates in May this year.
Also, the index is now only 2% below the level prior to the 16.2% fall in August. In adition,the index is 3.1% above the average read for the last six months since the RBA began raising interest rates. All this leads Westpac chief economist Bill Evans to the conclusion that “as with the May rate hike, it appears that the effects of the August rate hike are starting to wear off for the consumer”.
All this must be music in the ears of those economists who still expect at least one rate hike this year.
Westpac argues lower petrol prices and consumers simply getting used to higher interest rates are the main factors behind the confidence recovery.
Consumers’ perceptions of their finances over the next twelve months rose by 10.1%, while their assessment relative to a year ago improved by 1.6%. Expected economic conditions over the next twelve months improved by 8.8% and expectations over the next five years were down by 3.5%.
Westpac joinsthe likes of ANZ and TD Waterhouse in believing the RBA is poised to raise interest rates at its upcoming November meeting by 25 basis points. The bank argues the September quarter inflation data is likely to show the RBA’s measure of annual underlying inflation is running above the top of its target zone. Indications such as today’s Consumer Sentiment Index will give the RBA little comfort that inflation pressures are likely to ease significantly without a further rate hike, according to Westpac.