Key insights from the week that was.
The Westpac–MI Consumer Sentiment Index rose 4.1% in July; but at 83.9, the index is still in the bottom decile of historical outcomes, pointing to deep pessimism. Lower fuel prices have provided some breathing room, contributing to a less-negative assessment of ‘family finances vs a year ago’ (+5.6%) and ‘family finances next 12mths’ (+13.4%). Consumers remain sensitive to developments in the Middle East, however, last week’s re-escalation of the conflict resulting in a progressive deterioration in daily responses while the survey was in the field.
Views on the economic outlook are weak and little changed, the one- and five-years ahead sub-indexes lifting just 0.6% and 0.7% in the month; more encouragingly, concerns over the jobs outlook have eased. Most consumers still expect mortgage rates to rise over the next year, though the share has declined from 66% to 60%, with a rising proportion reporting uncertainty about where rates are headed. Ultimately, the survey reported a reprieve from worst-case fears but is also evidence of the scale of challenges ahead.
The latest NAB business survey echoed similar themes. Business confidence continued to retrace the sharp falls seen at the onset of the Middle East conflict, rising +9pts to a less-pessimistic reading of –5. Lower fuel prices contributed to slower growth in purchase costs and final prices, but the cumulative impact of these pressures have weighted on capital expenditure plans and labour demand. Business conditions remain subdued, holding at +3 for a third consecutive month having weakened earlier in 2026. This is consistent with sluggish activity growth as households and businesses approach the outlook with caution.
Offshore, US inflation data was supportive of interest rates remaining on hold in coming months. Headline prices fell 0.4% in June as energy prices responded to the Middle East ceasefire agreed mid-month, pulling annual inflation down from 4.2%yr to 3.5%yr. Of greater significance for monetary policy, however, was the flat monthly read for core inflation, 2.6%yr.
Members of the FOMC want to see further evidence of disinflation towards the 2.0%yr target. In our view, the multi-month trends are consistent with such an out-turn, with core goods prices broadly unchanged year-to-date and core services inflation averaging just below 0.3% per month. The June PPI report corroborates this view, headline producer prices falling 0.3%, while May was revised down sharply from 1.1% to 0.6%. Ex food and energy, prices rose a modest 0.2%mth, and the prior month’s gain was revised lower from 0.4% to 0.1%. The latest readings on consumer demand are also consistent with inflation returning to target, nominal control group retail sales up a modest 0.5% in June after a 0.8% gain in May, and the latest Beige Book also pointing to consumer demand being constrained by cost-of-living pressures. The duration and severity of the renewed conflict in the Middle East will be critical to the US growth outlook given University of Michigan consumer sentiment remains stuck near multi-decade lows.
Over in Asia, China’s Q2 GDP and June activity data provided a mixed read on their economy. Q2 GDP met expectations at 0.9%qtr, although the annual rate disappointed at 4.3%yr. Year-to-date, growth remains broadly consistent with our expectation of 4.7%, but such an outcome would be at the lower end of authorities’ 4.5–5.0% full-year target. The industrial sector continues to drive aggregate momentum, production growth rebounding to 5.3%yr in June from around 4.0%yr through April and May. But the domestic growth story remains fragile, primarily owing to declining investment, -5.7%ytd in June. Retail sales growth recovered from -0.6%yr in May to 1.0%yr in June, though that still leaves it at the lower end of the historical rage. Together, the state of domestic investment and household consumption call for urgent pro-active stimulus to support cyclical momentum as well as structural change to help the gains of trade flow to the wider economy.
The Bank of Korea raised rates by 25bp this week and signalled further tightening is likely. Inflation remains elevated, due to a combination of higher energy, exchange rate and food costs alongside resilient domestic demand. But the BoK’s greater challenge is managing an increasingly two-speed economy, with tech-related sectors benefiting directly from the AI and data centre investment boom while others wait for those gains to spill over. For now, policymakers appear comfortable leaning against inflation and expecting the benefits of AI production and investment to broaden; although, in the interim, this leaves Korea exposed should enthusiasm around AI turn. Investment and the implications for growth and policy is a focus of this month’s edition of The Wrap on Asia; and, with a particular focus on AI investment, Chief Economist Luci Ellis’ weekly essay.
 and ‘family finances next 12mths’ (+13.4%). Consumers remain sensitive to developments in the Middle East, however, last week’s re-escalation of the conflict resulting in a progressive deterioration in daily responses while the survey was in the field.){kind=link}