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Consumer confidence surges; rate rise likely

21 January 2010 Reporter

Consumer confidence continues to remain strong, despite three consecutive rate hikes late last year.

According to the Westpac-Melbourne Institute’s consumer sentiment index, consumer sentiment jumped 5.6 per cent in January to 120.1 and is now 33.6 per cent higher than a year ago.

Westpac's chief economist Bill Evans said that while the jump in consumer confidence was thanks to better than expected job growth, it would also increase the chance of another rate rise next month.

“It is likely that the most important fillip to confidence in the month was the continuation of positive surprises on the employment situation. Last week it was reported that the national unemployment rate had surprisingly fallen from 5.6 per cent to 5.5 per cent in December,” Mr Evans said.

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“Supporting the importance of the jobs market in buoying confidence, we note that over the course of 2009 the Westpac–Melbourne Institute measure of how households assess their job security has improved substantially.”

Mr Evans said the high level of confidence suggested that consumers had comfortably absorbed the higher interest rates.

“The confidence of those respondents who currently hold a mortgage has reached its highest level since 1994 when we first collected data using categories defined by home ownership. These categories of the Index are not seasonally adjusted but suffice to note that the rise in the confidence of those respondents with a mortgage was up 16.7 per cent in January compared to the average rise in January of 8.6 per cent,” he said.

“Clearly a major source of relief for households was the absence of a further rate increase. With no meeting of the Board of the Reserve Bank in January the record run of three consecutive monthly increases in interest rates was interrupted.”

Consumer confidence surges; rate rise likely
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