War, inflation fears darken consumer mood: Westpac survey

Floods, war, talk of inflation and higher interest rates have spooked households, with confidence turning negative for the first time since 2020.

Talk of floods, war, inflation and higher interest rates have spooked consumers. Picture: NCA NewsWire / Andrew Henshaw

Talk of floods, war, inflation and higher interest rates have spooked households.

Westpac’s latest consumer sentiment survey showed confidence has turned negative for the first time since September 2020, with the bank’s confidence index dropping from 100.8 points in February to 96.6pts in early March, revealing pessimists outnumbered optimists.

Westpac chief economist Bill Evans said the latest deterioration in the mood among households “comes as no surprise”.

“The war in Ukraine; the floods in south-east Queensland and Northern NSW; ongoing concerns about inflation and higher interest rates were all likely to impact confidence, although the size of the decline is still notable,” Mr Evans said.

“Just over two thirds of Australians expect interest rates to increase over the next year – the highest proportion since August 2011,” he said.

Awareness of issues around inflation have “exploded”, he said.

A question around news recall in the survey showed accelerating consumer price growth was top of mind, with nearly 40 per cent of respondents recalling news on inflation, from under 10 per cent a year ago. Correspondingly, “awareness of interest rate developments has also risen with the proportion recalling news on this topic lifting from 6.9 per cent to 18.1 per cent,” Mr Evans said.

Westpac chief economist Bill Evans said the latest deterioration in the mood among households “comes as no surprise”. Picture: Daniel Pockett

Headlines around the Ukraine conflict have also made an impression: 19 per cent of respondents recalled international news, versus 7 per cent 12 months ago.

Driving the 4 per cent monthly fall in the overall consumer confidence gauge was a sharp deterioration in views on the economic outlook, with sentiment around the economy over the coming 12 months dropping by 7 per cent.

This was despite the Reserve Bank forecasting the national economy will grow by a robust 4.25 per cent this year, and with unemployment expected to fall below 4 per cent over coming months and to the lowest since 1974.

Households’ collective mood around their finances versus a year ago and whether it was good time to buy a major household item also darkened, with the relevant subindices falling by about 4 per cent from February.

Mr Evans said the results were “no doubt partly reflecting the recent weakness in the share market and the 25 per cent lift in petrol prices since the beginning of the year, compounded by the fear that there is a lot more to come”.

Reserve Bank governor Philip Lowe in a speech this morning said a rate hike in 2022 was “plausible”, with a number of economists anticipating an increase from 0.1 per cent to 0.25 per cent at the June RBA board meeting. Dr Lowe said soaring global energy prices risked entrenching high inflation rates, and that headline consumer price growth could push above 4 per cent in coming months, from 3.5 per cent now.

But the RBA boss said the central bank was prepared to remain patient as it waited for a lift in wages growth, which Dr Lowe believes remains necessary for a “sustainable” return to underlying inflation within the 2-3 per cent target range.