Australia Westpac Consumer Sentiment Index dropping sharpy by -7.9% from 85.8 to 79.0 in May. This decline brings the index close to the grim levels observed in March, which were the lowest since COVID-19 outbreak in 2020 and, prior to that, since the severe recession of early 1990s.
The unexpected decision by RBA to raise the cash rate by an additional 0.25% in May, as well as the Federal Budget, were cited by Westpac as the two main factors impacting consumer sentiment over the last month.
Westpac stated, “Interest rates were again a key driver of the May survey. The RBA raised the official cash rate by a further 0.25% at its May meeting in the week before the survey. The move came as a major surprise to markets and most commentators, clearly stoking consumer fears of more increases to come.”
Looking ahead, Westpac predicts that RBA will likely pause in June, awaiting further data on inflation and the state of the economy. While the bank’s central view anticipates the current cash rate will remain at its peak due to economic weakness and clear progress toward the Board’s inflation target, it acknowledges that the risks are still “evenly balanced”.
