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Consumer confidence bounces back 17 percent: Westpac Survey

The Westpac – Melbourne Institute Index of Consumer Sentiment has bounced back 17 percent over the last two months as consumers burned by six RBA interest rate increases in nine months recover.

Westpac-Melbourne InstituteIn August the Westpac – Melbourne Institute Index of Consumer Sentiment rose from 113.1 in July to 119.2, a further increase of 5.4 percent from July’s increase of 11.1 percent.

Westpac’s Chief Economist, Bill Evans, sees this as a very strong result, and illustrates the sense of relief felt by consumers after the RBA board held Australia’s official cash rate at 4.5 percent at its June board meeting, then going on to affirm that decision in both July and August.

“This is a very strong result. After tumbling by 15 percent in the wake of three consecutive rate hikes in March, April and May the Index has now recovered by 17 percent in the last two months. It is now back to around the level it reached at the beginning of this year and the level we saw prior to the beginning of the rate hike cycle in September last year.”

“There were many reasons to expect the Index to rise in August although a 5.4% increase following the 11.1% increase last month is much larger than we expected. Clearly the most important factor was the decision by the Reserve Bank to keep its overnight cash rate steady in August.”

The Reserve Bank’s decision to hold interest rates on hold most certainly played an effect, with mortgage holders consumer confidence figures increasing by 10.2 percent compared to home owners who don’t have a mortgage increasing by only 0.9 percent. Other factors also come into play however, with renters confidence levels increasing by 10.2 percent in the August Index of Consumer Sentiment survey.

Underpinning the consumer confidence numbers in the Westpac Survey a total of 45,900 new jobs were added for June and unemployment remained steady at 5.1 percent. In addition, other prices likely to influence consumer confidence such as petrol and the price of the Australian dollar relative to the US also firmed for consumers.

“Uncertainty over the election result, which may have contributed to a surprise fall in Business Confidence, does not appear to be affecting households.” Mr Evans said.

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David Olsen

David Olsen

An undercover economist and a not so undercover geek. Politics, business and psychology nerd and anti-bandwagon jumper. Can be found on Twitter: <a href="http://www.twitter.com/DDsD">David Olsen - DDsD</a>

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