Australia | Jan 16 2008
By Rudi Filapek-Vandyck
The Westpac-Melbourne Institute Index of Consumer Sentiment fell by 8.3% in January from 112.5 in December to 103.1 in January.
According to Westpac economists, January’s reading is a fairly typical response from consumers to an increase in existing mortgage rates noting the average fall in the Index in response to the previous six rate hikes has been 9.7%. (The difference is, of course, that this time the increase did not come as a result of the Reserve Bank of Australia raising its overnight cash rate but directly from the banks).
The economists note Australian consumers have also been battered by a series of other unsettling news such as . Firstly, media reports the real possibility of a follow up rate hike from the RBA in February, the probability of a recession in the US, and a 10% increase in petrol prices over the last two months. News on the sharemarket has also been discouraging.
At 103.1, the Index is still pointing to a majority of optimists over pessimists, Westpac economists highlight. However, the Index is now down 16.8% from its May 2007 peak; 5.9% below the level of January last year and 10.5% below its average for 2007.
Typically, the largest fall amongst the components of the Index was in the outlook for “economic conditions over the next 12 months”. Pessimism on the US economy and the rate hikes have pushed that component down by 20.4%, while the outlook for “economic conditions over the next 5 years” has tumbled by 10.4%. Opinions on “Family finances over the next 12 months” fell by 3.1%. Overall the three components of the Index which measure expectations were down by 11.6%. Opinions on “Family finances compared to a year ago” fell by 0.8% while on sentiment whether it is “a good or bad time to buy major household items” was down by 5.4%.