Australian consumer mood bleak in May after surprise rate hike, budget

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SYDNEY – A measure of Australian consumer sentiment fell in May after a surprise rate hike by the Reserve Bank of Australia (RBA) and a “moderately disappointing” federal budget clouded the household and economy financial outlook.

The Westpac-Melbourne Institute’s index of consumer sentiment on Tuesday fell 7.9% in May from April, with the index falling above levels seen in March, which marked the lowest monthly reading since the COVID-19 outbreak in 2020.

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“The two main developments that I saw in the last month were the Fed’s surprise decision to hike the interest rate by another 0.25% in May and the federal budget,” said Westpac chief economist Bill Evans.

A reading of 79.0 for the month of May means pessimists outnumber optimists.

The Reserve Bank of Australia surprised markets earlier this month by raising interest rates rather than holding off for as long as was widely expected by traders, saying that inflation – which was near a 30-year high of 7.0% – was too high and had Higher rates would be required to achieve this. to the heels.

Australia’s Labor government last week boasted of its first budget surplus in 15 years, as strong job growth and bumper mining profits swelled its coffers, but it also announced billions in cost-of-living relief.

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“Some consumers may also have unrealistic expectations in the 2023 budget — particularly about the scope of providing cost-of-living relief without adding to the task of reining in high inflation,” Evans said.

Stubborn inflation and soaring energy prices put consumers off buying a major household item, with the index down 0.4%.

Confidence in the outlook for house prices rose, with the index rising 10.7%, hitting its highest level since February 2022, while about 70% of consumers expect mortgage rates to rise over the next twelve months.

(Reporting by Ringo Jose in Sydney; Editing by Shri Navaratnam)