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Aust consumer confidence falls further in April

Australian consumer confidence falls further in April

Consumer confidence fell 1.3%m/m in April (JPMorgan +6.0%), after slumping 9.1% in March to the lowest level in nearly 15 years. The Westpac-Melbourne Institute's consumer sentiment index fell to 87.4 from 88.6, and is down 30% since the May 2007 peak. The index reading is falling further below the 100 level where the number of optimists equals pessimists.

The deterioration in sentiment emerged even after the RBA left interest rates steady in early April. In March, we saw sentiment deteriorate sharply after the RBA hiked the cash rate another 25bp, on top of the 25bp hike the Board delivered in February, but sentiment was expected to improve following the "no change" rate decision in April. It appears that the decision among several domestic banks to raise their standard variable loan rates by more than, and outside of, the recent rises in the official cash rate - in an attempt to alleviate the impact of higher market funding costs - are weighing heavily on consumers.

The RBA's decision to leave rates unchanged in April did, however, boost sentiment toward household finances. Of the three components of the confidence index that rose in April, two of these were related to family finances, with sentiment toward family finances a year ago (+2.7%) and a year ahead (+8.1%) both improving. Expectations also improved 1.1%. The remaining components recorded falls: the economy one year ahead (-6.4%), the economy five years ahead (-0.3%), buying major household items (-12.7%), and current conditions (-5.3%).

Concerns of a recession in the US economy, financial market volatility, and still-elevated petrol prices will weigh on consumer sentiment in the near term. Furthermore, there remains a risk that the RBA may yet hike interest rates given the terrible inflation outlook, with annual headline inflation forecast to hold above the top end of the RBA's 2-3% target range for at least another two years. That said, the likelihood of further tightening has fallen considerably due to deteriorating conditions offshore, ongoing problems in credit and money markets, and recent domestic indicators showing tentative signs of easing domestic demand.

- Consumer sentiment dropped 1.3%m/m in April, after slumping 9.1% in March.

- The consumer sentiment index slipped from 88.6 to 87.4, below the 100 level, meaning that the number of pessimists outweighs optimists.


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