Australia | May 21 2008
By Rudi Filapek-Vandyck
Australian consumer sentiment bounced in May, according to the latest Westpac Melbourne Institute Consumer Sentiment Index. Westpac economists report this morning the index increased by 2.7% in May from 87.4 in April to a reading of 89.8 in May.
The economists assume the bounce can be interpreted as a thumbs up for Labour’s first federal government budget.
As such, May represents the first monthly increase in the index since December last year, the economists point out. It is even 1.3% above the level in March but Westpac maintains the index reading “is still disturbingly low”. While the April read was the lowest since June 1993, the reading in May is only slightly higher and is still indicating a depressed consumer, the economists add.
Westpac reports the components of the index moved in somewhat different directions. ”Buying conditions” rebounded by 18.4% from its record low level in May, but remains 40.2% below its level from a year ago. The outlook for economic conditions over the next 12 months was also up strongly by 15.9% but, nevertheless, was still down by 36.9% from a year ago. The economic outlook over the next five years was effectively unchanged (up 0.6%). On the other hand, consumers became more concerned about their own finances, Westpac economists point out.
Assessments of finances relative to a year ago were down by 2.8% whereas the outlook over the next twelve months deteriorated by 10.9%. Both finance components are now down about 20% over the year.
Westpac economists currently assume there will be no more rate hikes in Australia, but they also point out that this view can change anytime, depending on how much slower economic activity will turn out to be in the months ahead, and by how much inflation will subside at the same time.
Minutes from the last RBA board meeting, released yesterday, revealed the board had a lengthy discussion about the need for higher interest rates in early May.