Consumer confidence optimistic

shoppers, shopping, centre, mallLast week’s Reserve Bank interest rate cut and falling petrol prices have given consumer confidence a big boost.

The Westpac/Melbourne Institute index showed consumer sentiment rose by eight per cent in February to 100.7 points.

It was the first time since February last year the index was above 100 points, which indicates there are more optimists about the economy than pessimists.

Westpac chief economist, Bill Evans, said this is a much stronger result than was expected.

“However, rates were not the only reason behind the big boost to confidence. Lower petrol prices and a surging sharemarket also appear to have had an impact,” he said.

“This lift in confidence should allay any concerns that rate cuts, in the current environment of record low rates, can be a negative for confidence.”

Anna McPhee, CEO of Australian National Retailers’ Association, said it’s clear consumer confidence has been boosted by RBA rate cuts.

“The highest consumer confidence reading in more than 12 months has been boosted by the RBA’s decision to cut rates earlier this month, the decision by the banks to pass on, coupled with lower petrol prices and positive sharemarket performances.

“These factors have also helped to turn around previously pessimistic readings of how people feel about their own finances, however the reading also indicates consumers remain wary of their employment prospects which continues to impact confidence and spending decisions.

“It continues to be a wait and see whether more needs to be done to rebuild confidence before we see further improvements to activity in the retail sector and the recurring benefits this delivers to the economy more broadly,” said McPhee.

Westpac is expecting a follow up cut at the RBA’s March board meeting, because Evans said the positive response to a rate cut often wears off in the following months.

“The ongoing unease around employment security and likely soft growth in incomes also suggests the rise in confidence will see a more muted impact on spending,” he said.

The consumer confidence index also had the largest rise since April last year, the month before Treasurer Joe Hockey brought down a harsh budget that was a blow for consumer confidence.

Weak consumer confidence has been a drag on the economy for most of the past 10 months and the Commonwealth Bank said it is a major threat to the economy, when it released its profit results on Wednesday.

“Businesses need the certainty to invest to create jobs, and households need a greater feeling of security,” Commonwealth Bank CEO, Ian Narev, said.

“That requires implementation of a coherent long term plan that clearly addresses target government debt levels and timeframes, infrastructure priorities, foreign investment, business competitiveness policies and, above all, job creation.”

The Westpac/Melbourne survey was conducted between February 2, the day before the RBA cut the cash rate, and February 6.


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