Australia | Dec 13 2006
By Rudi Filapek-Vandyck
The Westpac Melbourne Institute Index of Consumer Sentiment has surprised on the upside by rising by 11.8% in December from 95.0 in November to 106.2 in December.
The strong reading leads Westpac economists to the comment that December’s consumer sentiment update has revealed “a surprisingly strong result”. Westpac had anticipated some sort of a rebound following the 9.7% fall in November, but not “such a strong recovery”.
As a result of December’s strong reading the index is now 1% above the level it was at in October, prior to the interest rate increase which the Reserve Bank announced in November.
Westpac speculates the strong rebound in consumer confidence is probably linked with the continuing strong labour market throughout Australia. The bank also notes that, despite three interest rate increases in 2006, the confidence of mortgagees has atually risen by 5.2% over the year.
Westpac continues to expect the Reserve Bank to raise interest rates again, following the Board meeting on February 6. The view is consistent with the bank’s expectation that core inflation pressures are continuing to build in the economy. In addition, the bank believes, there will be insufficient evidence that the previous three rate increases in 2006 have slowed the economy enough to give the RBA confidence that inflation will slow. It goes without saying that today’s consumer sentiment update has only strengthened Westpac economists in their conviction.