Confidence lifts 3% as consumers expect the 'worst' of the rate hikes are in the past

The Westpac-Melbourne Institute Consumer Confidence Index lifted 3% from the near-recessionary lows in November to 80.3 in December. 

This increase comes despite the eighth consecutive cash rate increase, highlighting a shift in consumer views on interest rates and their impact on property prices. 

With the bulk of the tightening cycle now behind us, Westpac Chief Economist Bill Evans said the lift in the outlook of house prices was surprising, prominent across all major state housing markets. 

“The idea may also be behind a notable recovery in confidence more generally amongst those respondents who hold a mortgage - with confidence up 11.3% in the month,” Mr Evans said. 

Outside of the property market, consumers grew more optimistic on the outlook of finances, with the sub-index ‘family finances next 12 months’ lifting 6.9%. 

Despite growth, Mr Evans notes the overall consumer confidence index remains comparable with the lows seen during COVID and the Global Financial Crisis.

ANZ-Roy Morgan Consumer Confidence Index revealed similar, revealing an uptick of 0.2% in the past week. 

Importantly, ANZ-Roy Morgan Consumer Confidence is a weekly index, while Westpac-Melbourne Institute is published monthly. 

ANZ Senior Economist Catherine Birch noted this was the first time in the current tightening cycle that confidence has improved after an increase in the policy rate. 

“(This is) perhaps a sign that households expect a pause soon,” Ms Birch said.

Consumers look to stash cash in deposits

The uptick in consumer confidence has not stopped consumers continuing to remain risk averse, with Mr Evans noting bank deposits and debt reduction are heavily favored methods of saving.

“Updates on our ‘wisest place for savings’ questions run every three months, show safe or defensive options remain heavily favoured, with 34% of consumers nominating ‘bank deposits’ and 21% nominating ‘pay down debt’,” he said. 

“Meanwhile very few consumers favour riskier options, only 8% nominating real estate and 7% nominating shares.”

Since the RBA began increasing the cash rate in May, savings rates have climbed 260 basis points based on average deposit data from the central bank. 

Further, RBA data details rates for one-year term deposits have increased 245 basis points.

Image by Nicole Michalou via Pexels