Australia | Jan 22 2009
By Rudi Filapek-Vandyck
Westpac economists have this morning released the conclusions drawn from their latest survey into Australian consumers expectations with regards to inflation and unemployment. The results of the survey seem to indicate consumers may have become too pessimistic, on the economists’ assessments. But whether this is true, or not, will have to be proved by developments over the next few quarters, of course.
According to the survey, consumers’ inflationary expectations saw their first rise since June in January, rising to a median of 2.7% from 2.5% previously. Nevertheless, reports Westpac, the rapid downtrend since June 2008 continued, with the trend level in January just 2.58%, well down from a peak in June of 5.40%. Also, this is the lowest trend level since April 1999.
The median expectation of managers and professionals (collected since 1995) edged up to 2.4% from 2.0%, but also continued their rapid downtrend to 2.22%, the lowest since February 1999.
In the detail, the proportion of consumers expecting inflation above the 2% to 3% target band rose to 45.9% from 41.2%, but remained well below its twelve-month average of 61.9%. The proportion expecting inflation within the band also rose to 8.5% from a record low of 6.9% previously.
Westpac reports these increased proportions were at the expense of a drop in the proportion expecting prices to stay the same (21.0% versus 23.7% prev) and a sharper fall in the proportion in the “don’t know” category (13.6% versus 18.3% previously). Despite these moves, the trend in the net balance of respondents expecting higher prices overall continued to fall to 44.3% from 49.9%, a new record low.
Associated with the pullback in January consumer sentiment, consumers’ unemployment expectations continued to deteriorate at a rapid rate in January, taking their trend to even more pessimistic levels historically, reports Westpac.
The unemployment expectations index rose 5.0% in January to 180.74 after a 0.7% fall previously. This took trend deviation from full history average higher to 40.5% from 33.2%. The economists point out this is worse than seen in the 1990/91 recession (when the high for deviation was 32.2%), implying recession levels of consumer pessimism over the labour market outlook.
For now, Westpac’s preferred leading indicators of labour demand (job ads, Westpac-ACCI labour market composite, a composite of business survey employment indicators) continue to argue for a less pessimistic outlook, consistent with the economists’ view for a slowing in annual jobs growth to zero through 2009, lifting the unemployment rate to 6%. But the signals from consumers’ unemployment expectations imply risks of a more marked deterioration.