Australian Consumer Confidence Sinks on Rate Hike Fears, Rising Fuel Costs

Australian consumer confidence deteriorated significantly in September, pushed down by a combination of surging fuel costs and mounting concerns that the central bank will resume its interest rate hiking cycle. The Westpac Consumer Sentiment index plunged 5.2% to 84.4, erasing recent gains and returning near historic lows.

Key Drivers of the Decline

According to a statement from Westpac, the sharp drop brings sentiment back toward the "extremely pessimistic levels" seen earlier this year. The decline was fueled by two primary factors: rising cost-of-living pressures and expectations of higher borrowing costs.

• Fuel Prices: Gasoline prices at local stations have climbed back above A$2 per liter for the first time since April, reflecting higher global energy costs and the expiration of a temporary fuel excise tax cut.
• Interest Rate Fears: Following stronger-than-expected inflation and GDP data, about 64% of consumers surveyed now expect mortgage rates to rise over the next 12 months. This comes as the Reserve Bank of Australia (RBA) approaches its next policy meeting in three weeks.

Impact on Household Finances

The survey highlighted a marked downturn in how consumers view their own financial situation. A key sub-index measuring "family finances compared to a year ago" plummeted by 9.2%. Matthew Hassan, Westpac's head of Australian macroeconomic forecasting, noted that cost-of-living pressures are "intensifying again."

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This anxiety is particularly acute among mortgage holders, a group whose overall confidence fell by 14%. Their assessment of whether it is a "good time to buy a major household item" dropped by a steep 18%, signaling that households with home loans are actively tightening their spending plans.

Broader Economic Context

The souring consumer mood comes amid a cooling housing market, which has been impacted by the RBA's previous rate hikes that brought the cash rate to 4.35%. According to property consultancy CoreLogic, national home prices fell 0.9% in August, their fifth straight monthly decline.

Reflecting the weakening outlook, HSBC on Tuesday revised its forecast for the housing market, now predicting a peak-to-trough price decline of 13%, up from a previous estimate of 8%. Hassan stated that rate hike fears have "dampened consumer expectations for their own finances and the economic outlook" and could be "exacerbating concerns about a sustained weakening in the housing market."