Australian consumer sentiment deteriorated sharply in October, with the Westpac–Melbourne Institute Consumer Sentiment Index falling 4.7% from 84.4 to 80.4. The weakness was especially pronounced after the latest RBA rate hike. Sentiment among the 60% of respondents surveyed before the decision was 86.9, slightly above September’s reading, but collapsed to 67.2 among the 40% surveyed afterward. Westpac said the nearly 20% difference between the pre- and post-decision samples was the largest since it began tracking daily responses in 2019.
Pressure was concentrated in household finances and spending appetite. The index measuring family finances compared with a year ago fell 8.0% from 72.6 to 66.9, while expectations for family finances over the next 12 months dropped 6.4% from 94.5 to 88.4. The “time to buy a major household item” index declined 7.1% from 89.3 to 83.0. Westpac attributed the deterioration primarily to the combination of higher fuel prices and higher interest rates, with national pump prices back above $2.30 per litre and the cash rate at 4.6%.
Consumers also became more concerned about further rate increases and the labour-market outlook. The Mortgage Rate Expectations Index rose 5.5% from 170.4 to 179.7, close to its May cycle peak. Among those surveyed after the RBA decision, just over 80% expected mortgage rates to rise further over the next year, compared with 63% in September. The Unemployment Expectations Index also increased 1.9% from 139.4 to 142.1, indicating somewhat greater concern about job security. Housing sentiment provided a partial offset, with the “time to buy a dwelling” index rising 3.4% to 88.4 and house price expectations increasing 4.3% to 115.1.
Westpac said the latest reading shows consumer pessimism remains intense and widespread, while higher fuel costs are also beginning to flow through into prices across a broader range of goods and services. Against that backdrop, Westpac judged that upside inflation risks previously highlighted by the RBA are materialising and said it expects a follow-up rate hike at the November 2–3 meeting. The survey therefore presents a difficult combination for households: sentiment has weakened sharply after the latest tightening, yet the inflation pressures cited by Westpac may still leave scope for further policy restraint.
Data Summary
| Indicator | Oct | Sep |
|---|---|---|
| Consumer Sentiment | 80.4 | 84.4 |
| Family finances vs year ago | 66.9 | 72.6 |
| Family finances next 12 months | 88.4 | 94.5 |
| Time to buy major item | 83.0 | 89.3 |
| Unemployment Expectations | 142.1 | 139.4 |
| House Price Expectations | 115.1 | 110.3 |
| Interest Rate Expectations | 179.7 | 170.4 |
Key Takeaways
- Consumer sentiment fell sharply, declining 4.7% from 84.4 to 80.4 in October and remaining deeply pessimistic.
- The most striking detail was the reaction to the RBA rate hike. Sentiment was 86.9 among respondents surveyed before the decision but just 67.2 afterward, the largest pre/post-policy divergence since Westpac began tracking daily responses in 2019.
- Household finances deteriorated sharply: family finances versus a year ago fell 8.0% to 66.9, while expectations for the next 12 months dropped 6.4% to 88.4.
- Spending appetite weakened: the “time to buy a major household item” index dropped 7.1% to 83.0, around 40 points below its long-run average.
- Rate expectations rose further: the Mortgage Rate Expectations Index climbed 5.5% to 179.7, with more than 80% of post-RBA respondents expecting mortgage rates to rise over the next year.
- Job concerns increased modestly: the Unemployment Expectations Index rose 1.9% to 142.1, above its long-run average.
- Housing sentiment was the exception: “time to buy a dwelling” rose 3.4% to 88.4 and house price expectations increased 4.3% to 115.1, although post-RBA responses were considerably weaker.
- Westpac expects a follow-up RBA hike in November, arguing that higher fuel costs are beginning to feed through more broadly and that upside inflation risks are materialising.
