Inevitable rate rises drive fall in confidence

Consumers are lacking confidence as they wait for interest rates to rise, research has shown.

Consumer sentiment fell by three per cent in February, down 7.5 per cent on the same time last year and 9.5 per cent below recent post-election peaks, according to the Westpac-Melbourne Institute Index of Consumer Sentiment.

Westpac chief economist Bill Evans said the survey shows households are particularly worried about the future, with interest rates a major concern.

“Households are clearly more worried about interest rates... In this survey, 57 per cent of respondents expect interest rates to rise over the next 12 months, with 18 per cent expecting increases of more than one percentage point,” he said.

“That contrasts with only six per cent who expect some mortgage relief. When we last surveyed this issue in August last year, only 39 per cent expected rates to rise,” added Mr Evans.

The survey also shows that exuberance around house price growth is starting to wane, with the House Price Expectations Index falling by 2.2 per cent during the month.

While the index is now 4.3 per cent below its peak in December, it remains 26.2 per cent above its level at the start of last year.

Mr Evans said the survey is sending a clear message from households questioning why fiscal policy is about to be tightened and interest rates lifted when the labour market is so weak and housing affordability is being squeezed.

“There may also be heightened concerns about what lies ahead with the May Budget,” Mr Evans said.

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