Consumer and business sentiment nosedive to COVID levels amid fuel crisis

The latest Australian consumer and business sentiment data shows a significant drop in confidence following a double whammy of rate hikes and surging fuel costs.

AMP economist My Bui noted that the Westpac-Melbourne Institute Consumer Sentiment Index fell heavily in April, declining 12.5 per cent to 80.1 from 91.6 in March.

Bui said this was the lowest consumer sentiment level since late 2023, when the cash rate was also at 4.1 per cent.

“The only other times sentiment fell to a similar level were during the GFC and Covid pandemic,” she added.

“The alternative ANZ/Roy Morgan followed a similar trajectory lately and is now averaging at just 63.4, a new historical low.”

Bui warned that Australia was likely to face another per-capita consumption in the next few months, with the Strait of Hormuz continuing to be a chokepoint and the RBA expected to hike further.

She noted that the decline was broad-based, with component surveys on current and future family finances, near- and long-term economic conditions, and “time to buy a major household item” all posting significant declines over the month.

Consumers were particularly worried about economic conditions over the next year, with this component reading only at 75.3, the lowest since early 2023.

The unemployment expectations index also rose to a new cycle high of 150, driven by cyclical industries such as construction and hospitality.

Business sentiment similarly expected a large drop, with the NAB business confidence survey posting its second-largest monthly fall in history, dropping 29 points.

“Business sentiment had already trended down before the conflict, reflecting some early deterioration from consumer spending, and the April readings will likely continue to remain soft,” Bui said.

“The weakness was seen across industries with the worst falls in transport, construction and retail.”

AMP said the latest sentiment data suggest Australia is set for tough times ahead for both consumers and businesses.

“While the magnitude of the fall in confidence is staggering and signals slower economic activity, the RBA will be very concerned about inflation and inflation expectations, given a sharp rise in business input costs,” Bui said.

“We expect annual headline inflation to reach 5 per cent and the core reading to pick up to 3.6 per cent this second quarter, which is clearly too high for the Reserve Bank. The labour market has room to ease further, but it is starting from a strong base, so the RBA will continue to maintain a hiking bias for now to prevent inflation expectations from becoming unanchored.”