Consumer mood soured by declining dollar, Westpac finds

Consumer confidence has soured for the second month in a row in response to the declining Australian dollar and continued cost-of-living pressures, according to Westpac.

The Westpac-Melbourne Institute Consumer Sentiment Index, released on Tuesday, declined 0.7 per cent to 92.1 in January, down from 92.8 last month.

Chief economist Luci Ellis said the consumer mood was “pessimistic” but still less negative than one year ago.

“The consumer mood has soured for two months in a row and remains on the pessimistic side,” she said.

“Some components suggest that consumers expect things to continue to improve from here.”

The index found consumer sentiment towards current conditions declined more than their forward-looking expectations, which were flat or increasing.

The sub-index tracking consumers’ assessment of their finances compared with a year ago fell 7.8 per cent in January to 77.7, reversing the gains made in December.

Westpac said renters also recorded a small decrease in the month while homeowners with a mortgage had a 15 per cent increase.

Ellis said mortgagors were less likely to be retired than renters and homeowners and “thus were more likely to have benefitted from last year’s tax cuts”.

“The result highlights that the positive impact of the tax cuts on take-home pay needs to be balanced against all the other factors that have been dragging on families’ finances, including ongoing cost-of-living pressures,” she said.

Ellis also attributed the deterioration to the “ongoing unsettled global backdrop” and consumers reacting to news about the Australian dollar’s depreciation, which plunged on Tuesday to a five-year low.

It currently trades around US61c and has lost nearly 9 per cent against the greenback over the past three months.

Meanwhile, Westpac said the index’s forward-looking measures were more stable in January, with one indicator of future household spending, “time to buy a major household item”, increasing 1.8 per cent to 90.8.

Views about the economy in five years edged up slightly (up 0.7 per cent) and consumers’ views on the economic outlook were broadly unchanged.

AMP economist My Bui said milder inflation and wages growth rates translated into better consumer confidence.

The data also confirmed recent trends in retail sales and household consumption, she said.

“There has been some positive pickup in spending data, however, they increased from a low base and the level of sentiment remains quite cautious,” Bui said.

She predicted further improvements to the consumer mood this year with a near-term rate cut on the horizon as well as lower headline inflation.