Australia’s Consumer Sentiment Gains on Tax Cuts, Rate Pause

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% from the prior month to 85 points, with pessimists heavily outweighing optimists given a reading of 100 is the dividing line, a Westpac Banking Corp. 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% 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,” 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 Sept. 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: 

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