Australian consumer sentiment improved in August, according to Westpac’s monthly survey, though lingering pessimism continued to weigh on household confidence.
The Westpac-Melbourne Institute Consumer Sentiment Index rose 2.5% to 79.7 from 77.7 in July. The increase follows two consecutive monthly declines and marks the first rise since April. Despite the uptick, the index remains well below the pre-pandemic average of around 100, indicating ongoing caution among consumers.
Westpac chief economist Bill Evans noted that while the rise was encouraging, the level of sentiment remained historically low. "The index is still in deeply pessimistic territory," Evans said. "Households continue to face pressure from high living costs and rising interest rates, which are likely to keep sentiment subdued in the near term."
The survey, conducted over the first two weeks of August, showed mixed reactions across key components. Households were slightly more optimistic about their finances over the next 12 months, with the index for family finances rising 3.6%. However, expectations for the economy’s performance over the same period fell 1.5%, reflecting broader concerns about the economic outlook.
The index for buying major household items also improved, up 4.2%, suggesting some willingness among consumers to spend on essentials despite financial pressures. In contrast, the index for unemployment expectations rose 2.1%, signaling growing apprehension about job security.
The Reserve Bank of Australia’s aggressive tightening cycle, which has seen the cash rate increase by 400 basis points since May 2022, has contributed to the erosion of household confidence. Elevated inflation and borrowing costs have constrained disposable income, further dampening sentiment.
Westpac’s survey results align with other recent indicators pointing to a slowdown in consumer spending, a key driver of Australia’s economic growth. Retail sales data for June showed a modest increase of 0.8%, below market expectations, while business surveys have signaled weakening momentum in the services sector.
Analysts suggest that the persistence of low sentiment could pose a challenge for policymakers aiming to balance inflation control with economic stability. The RBA’s next policy decision is due in September, with markets pricing in a high probability of another rate hike.
The Westpac-Melbourne Institute Consumer Sentiment Index has been a closely watched barometer of household confidence since its inception in 1973. The latest reading underscores the fragility of consumer recovery amid persistent economic headwinds.
