July tax cuts, RBA’s pause a shot in the arm for consumer sentiment
Australia’s consumer confidence rose in August following the introduction of tax cuts and after the Reserve Bank paused interest rates, though persistent inflation remains a burden on households.
Sentiment advanced 2.8 per cent from the prior month to 85 points, with pessimists heavily outweighing optimists given a reading of 100 is the dividing line, a Westpac survey showed Tuesday. The index has held below 100 since March 2022.
“Consumers breathed a small sigh of relief,” said Matthew Hassan, a senior economist at Westpac. “The survey detail shows that cost of living and rate rise concerns are still weighing heavily.”
The RBA held rates last week at a 12-year high of 4.35 per cent while retaining a hawkish bent given inflation remains stubbornly sticky. Policymakers are monitoring sentiment to try to get a handle on Australians’ spending plans.
A key uncertainty is how households respond to the tax cuts and energy rebates that kicked in last month. Economists expect government spending will strengthen further ahead of a likely 2025 election, complicating the RBA’s inflation fight.
“The component indexes show a clear improvement in the latest sentiment data, centered around family finances,” Mr Hassan said.
Household consumption accounts for more than half of gross domestic product.
The survey was conducted in the week of the central bank’s policy meeting. It next convenes on September 23-24, with economists and financial markets predicting the RBA will again leave rates on hold. All eyes are on monthly employment report for July later this week.
Other key data points:
The family finances vs a year ago sub-index surged 11.7 per cent in August, the biggest monthly gain in nine yearsThe family finances, next 12 months sub-index rose 5.1 per cent to 96.8, the highest level since the rate tightening cycle began in May 2022The time to buy a major item sub-index edged up 0.6 per cent to 82.6The time to buy a dwelling index fell 5.8 per cent to 71.4, a new low for the year
Bloomberg
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