Petrol and rates give consumers the blues

CONSUMERS are feeling worse than at any time since the recession of 1992, thanks to soaring fuel costs and continually rising rates.

Petrol and rates give consumers the blues

AUSTRALIAN consumers are feeling worse than at any time since the recession of 1992, thanks to soaring fuel costs and continually rising interest rates.

The results from the Westpac Melbourne Institute consumer sentiment index show a shocking slump in confidence, given that the economy is in a much healthier state today than it was 16 years ago.

Back then, Australia was emerging from "the recession we had to have'', interest rates hit 18 per cent and unemployment was at 11 per cent.

But sharp rises in the cost of living -- from fuel prices, mortgage and rent payments -- plus higher levels of personal debt, mean that consumers do not feel any better than they did in the early 1990s.

Shane Oliver, chief economist at AMP, said: "Consumers have been hit with wave after wave of bad news, with interest rates, petrol prices and a slumping share market all hitting them in the pocket.

"Although on the face of it the economy is in better shape, the reality is that people will be feeling in a lot of pain today because they have three or four times the level of debt today than in the early 1990s.

"Even if rates are half the level they were back then, the effect on today's consumers will feel much worse.''

If history is any guide, slumping confidence will be followed by a sharp fall in retail sales, and that will eventually lead to a cut in interest rates.

But that is unlikely to happen soon. Given that the Australian economy is in the process of a continued slowdown, sentiment is likely to get even worse from here.

"Back in 1992, the economy was in the process of recovering, so sentiment slowly got better,'' Mr Oliver said.

"Today it's the opposite, we are entering a slowdown brought on quite deliberately by the RBA to curb inflation, so sentiment can fall quite a long way from here.''

The big culprit -- the cost of fuel -- has surged 7.6 per cent in a month in line with the rise in crude oil from from $US127 per barrel to $US138.

Westpac chief economist Bill Evans said the cost of petrol rather than high mortgage rates was the "main culprit'' behind consumer sentiment.

"It appears that petrol prices are second only to interest rates in affecting the sentiment of consumers,'' he said.

Mr Evans said this month's survey "certainly points to continuing evidence of a slowing consumer''.
The survey of 1200 people over 18 was conducted between June 2-8.

Westpac expected the Reserve Bank of Australia (RBA) to leave the official cash rate on hold until "more evidence is available on the extent of the economic slowdown and the prospects for inflation''.

"While annual inflation is likely to rise further, we expect that the quarterly measure will show that underlying inflation has peaked, giving the bank sufficient encouragement to await further evidence of the economic slowdown,'' Mr Evans said.