Rate cut and cooling inflation boost March consumer sentiment
Consumer confidence rose to a three-year high in March, buoyed by interest rate cuts and slowing inflation.
The Westpac-Melbourne Institute consumer sentiment index rose by 4 per cent in March, lifting to 95.9 from 92.2 in February.
“The RBA’s decision to cut interest rates in February and a further easing in cost-of-living pressures have provided a clear lift,” Matthew Hassan, head of Australian macro-forecasting at Westpac, said.
“The survey detail shows a broad-based improvement with a notable rise in confidence around the labour market outlook.”
In March, consumer sentiment was only 4 percentage points below the neutral level of 100, which denotes an equal number of optimists and pessimists in the economy.
Domestic factors were positive, with Australians enjoying the effects of a rate cut and slowing inflation. Consumers’ own finances were stabilising and they expected further improvement over the coming year, the survey found.
Buyer sentiment rose by 6.9 per cent in March to 97.1, indicating that the longest, deepest period of buyer pessimism since records began in the 1970s could be coming to an end.
The unemployment expectations index dropped 6.3 per cent to 117.9 in March, showing that respondents expected to see lower rates of unemployment in the near future. The index has dipped to its lowest level since the start of 2023, and remains comfortably below the long-run average of 129.
Labour market sentiments indicate that a soft landing may have already been achieved, Westpac said.
Westpac expected that the RBA would leave the cash rate unchanged in April, but easing inflation would make a cut more likely in May.
Over a third (36 per cent) of consumers believed mortgage rates would decline over the next year, while 22 per cent expected no change and 26 per cent expected rates to move higher.
Another rate cut would further bolster consumer confidence, underpinning a gradual recovery of sentiments, according to Westpac.
While consumers’ moods were boosted by positive domestic news, developments overseas have made some wary.
Respondents noted that the US tariff war, and deteriorating US relations with close allies, were key points of concern.
“Despite the improvement, there are still some signs of unease, particularly around developments abroad,” Hassan said.
“Our March, June, September and December surveys include additional questions on news recall. Responses in March show that while consumers detected a marked improvement in the domestic news-flow, the news from abroad has become more troubling.”
