Australia | Jun 09 2010
By Rudi Filapek-Vandyck
Given the developments on financial markets these past weeks, and the public turmoil and uncertainty caused by the government's RSPT, it will probably come as no surprise that consumer confidence in Australia, as measured by Westpac and the Melbourne Institute, has taken a dive.
The Westpac–Melbourne Institute Consumer Sentiment Index has fallen by 5.7% in June from 108.0 in May to 101.9 in June.
Westpac economists report today that, following the 7% fall in May, the cumulative 12.3% fall in the Index over the last two months represents the largest two month fall since March 2008.
At that time, note the economists, the Reserve Bank had raised interest rates on two consecutive occasions pushing the variable mortgage rate to 9.35% plus the global financial crisis was deepening.
As mentioned above, this time around we have turmoil on global financial markets and a public fight between the Rudd government and mining companies.
The Reserve Bank Board next meets on July 6. Westpac economists are not changing their view that rates will remain on hold following that meeting. The next significant meeting will be on August 3. At that meeting, highlight the economists, the Board will have received an update on inflation.
The economists point out that with limited spare capacity in labour and housing markets, inflation pressures are building in Australia.
If present turmoil persists over the next two months, Westpac believes the RBA Board will have a very difficult decision if the new inflation data point to further rising inflation pressures.
