Consumer sentiment among Australians has experienced a notable decline in January, marking a second consecutive month of decreased optimism, as highlighted by the latest data from the Westpac-Melbourne Institute Consumer Sentiment Index (W-MI). The index has displayed a worrying trend, dropping to 92.1 in January from 92.8 in December.
This reading is alarmingly beneath the neutral threshold of 100, indicating that the prevailing mood among consumers leans towards pessimism. A deeper examination of the data reveals that Australians' perceptions of their financial situation compared to the previous year have significantly deteriorated.
The corresponding sub-index fell from 84.2 in December to 77.7 in January. Furthermore, the unemployment expectations index has registered an uptick, rising to 127.2 from 123.7 in the previous month, reinforcing concerns about the job market. Despite these pressing issues, there is a glimmer of hope regarding financial outlooks, as Australian consumers indicate a belief that family finances may improve over the next year.
The sub-index for this perspective has risen to 104.4 in January, up from 103.2 in December, suggesting that longer-term financial expectations are not entirely bleak. On the housing front, however, Australians' appetite to purchase new homes remains subdued. The 'time to buy a dwelling' index has climbed to 89.9 from the significantly lower 81.6 in December, yet it is still considerably below the neutral marker of 100, indicating caution in the housing market. A significant contributing factor to consumer sentiment is the ongoing hike in interest rates, which are projected to remain elevated throughout 2025.
The Reserve Bank of Australia (RBA) has taken aggressive steps to tame inflation, increasing rates from an unprecedented low of 0.10% in April 2022 to a substantial 4.35% in November 2023. This trajectory of rising rates appears set to continue, with conditions not favoring cuts in the near future, according to W-MI's insights. Westpac, one of Australia's leading financial institutions, has commented on the potential movements of the RBA Board, stating, "There is still a chance the (RBA) Board moves in February or April if inflation comes in below expectations for the December quarter.
On balance, though, Westpac expects the Board to leave interest rates unchanged at its February meeting, with an easing expected to commence in May." The findings from the January consumer survey conducted by W-MI were derived from a sample of 1200 adults aged 18 and over, polled across various regions in Australia from January 6 to January 9, reflecting the sentiments of the general populace amid these financial challenges..