Oz Consumer Sentiment Up Despite Rate Hikes

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By Greg Peel

You’d be forgiven for thinking that after a year that saw three interest rate hikes, the Australian consumer would be less confident than this time last year. But not so, according to the Westpac/Melbourne Institute index of consumer sentiment.

After adjusting for seasonality, the WMI index rose 1.7% in February to 111.4 from 109.6 in January. A reading of 100 is neutral, and the recent high was seen in early 2005 at over 120.

This result represents a 3.2% increase in sentiment from February 2006.

Westpac chief economist Bill Evans notes two key drivers of the sentiment increase over the month. One was that everyone was expecting another rate hike in February, until the surprising low CPI figure came out. The other was that unemployment has fallen to a 31-year record low 4.5%.

Now that it seems the RBA will keep rates on hold for the foreseeable future, Evans expects consumer sentiment to rise again next month.

However, it’s all a tale of two regions. While city folk are relieved their mortgages won’t be hit again, country folk are, unsurprisingly, devastated by the drought. The sentiment rise breaks down into a 5% increase in the city and a 3.5% decrease in the bush.

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