Australians are feeling more confident ahead of a likely RBA rate in June

Cameron Spencer/Getty Images
  • Australian consumer confidence continued to lift last week, adding to modest gains seen following the federal election.
  • Sentiment towards family finances and the economy both improved, although that didn’t extend to expectations for household spending.
  • The RBA board will next meet on June 4.

Australians are feeling more confident following the federal election, although the improvement has been fairly modest in scale.

The ANZ-Roy Morgan Consumer Confidence Index rose to 118.6 last week, leaving it at the highest level in a little over a month. The index now sits comfortably above the series long-run average of 113.1.

Put another way, Australians are feeling more confident than usual.

ANZ Bank

The latest confidence update in noteworthy as it provides the first clear reading on sentiment following Australia’s federal election earlier this month. Increased speculation over a RBA rate cuts, potentially as soon as next month, may have also been a factor.

According to respondents in the latest survey, confidence towards family finances both now and looking one year ahead improved last week, lifting by 1.2% and 0.8% respectively.

Larger improvements were recorded in sentiment towards the economy looking one- and five-years ahead, lifting by 3% and 4.5% respectively as speculation over a RBA rate cut next month increased sharply.

“The prospect of lower interest rates and what appears to be a major sentiment shift on the housing market are likely drivers of the positive outlook,” said David Plank, head of Australian economics at ANZ.

Despite feeling more confident about their finances and the outlook for the economy, that enthusiasm did not extend to spending intentions with the final component in the survey — whether now is a good time to buy a household item — slipping 2.9% from a week earlier.

Nor do Australians think a better economy and finances will lead to higher inflation looking two years ahead.

“While the four-week moving average for inflation expectations was unchanged at 4.1%, the weekly reading dropped back under 4%,” Plank said.

“This is the fifth sub-4% reading since early March, an unprecedented run of low results for this survey.”

With inflation expectations so low, at a time when Australian inflation is already weak, there’s an increased risk that consumers will see disinflation becoming entrenched, potentially weighing on investment and spending decisions in the period ahead, especially if views on future wage increases are also lowered.

The decline in inflation expectations likely contributed to the recent shift from the Reserve Bank of Australia (RBA) to adopt an easing bias, implying that Australia’s cash rate is likely to be reduced in the months ahead in order to to help bolster economic activity and lower unemployment.

Financial markets, and all economists bar one surveyed by Bloomberg, expect the RBA will cut the cash rate by 25 basis to a new record low of 1.25% next week.

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