Two consecutive interest rate cuts have failed to boost post-Christmas consumer sentiment, a result economists have called “disappointing.” But slowing inflation means businesses may benefit from more rate cuts in the months to come.
The Westpac Melbourne Institute Index of Consumer Sentiment rose 2.4 percent in January, taking it from 94.7 in December to 97.1 in January.
Westpac chief economist Bill Evans said the result is “somewhat disappointing,” given the Reserve Bank’s decision to cut interest rates in November and December, by a total of 50 basis points.
“In effect, at this stage, the rate cuts have been unable to raise consumer confidence,” Evans said.
“That does not mean that the cuts have necessarily had no effect. Given ongoing financial turmoil in Europe; a flat housing market and further weakness in the labour market sentiment is likely to have been lower without the rate cuts,” he added.
January’s result is the sixth time in the last seven months the index has indicated pessimists outnumber optimists.
The sub-index tracking responses on ‘family finances compared to a year ago’ fell by 2.5 percent, while the sub-index tracking responses on ‘family finances over the next 12 months’ rose by just 0.7 percent.
Businesses can take heart in one positive aspect of the results however – that expectations on family finances are now registering their highest level since February 2011.
Evans had one final piece of good news for local businesses, saying he expects the Reserve Bank will again cut interest rates by 0.25 percent when it meets on February 7.
“Even at 4 percent there is ample scope for the Board to go further given the benign outlook for inflation. Indeed, we expect a follow up move in May,” Evans added.
