Australians reckon their finances are pretty good, but remain downbeat on where the economy is heading

Photo by Chris Ratcliffe/Getty Images

Australian consumer confidence continues to sit at elevated levels, according to the latest weekly ANZ-Roy Morgan survey released earlier today.

The headline confidence index rose by 0.9% to 118.1 last week, leaving it well above its long-run average of 112.8 that extends all the way back to 1990.

Collectively, Australians remain more confident than usual right now.

Breaking down the survey, most of the gain in the headline index came from improved perceptions towards family finances, particularly for current finances which has a reasonable relationship in predicting household spending.

It rose by 3.4%, overshadowing a smaller 0.2% gain in expectations for finances in the year ahead. Crucially, they both remain well above historic norms, offering hope that tepid household consumption of recent quarters may accelerate in the period ahead.

Views towards the near-term economic outlook also improved, rising by 5.4% having fallen by 2.0% in the previous survey.

However, that didn’t extend to sentiment towards the longer-term outlook for the economy with perceptions looking five years ahead sliding by 3.0%. Nor did it help to boost views on whether now was a good time to buy a major household item which also slipped by 0.4%.

Forgiving the weekly gyrations in the survey’s main components, it’s clear that sentiment towards finances is currently well above average, a stark divergence to the views expressed towards the economic outlook which are below average right now.

In what is quickly becoming an important indicator given it’s being watched closely by the RBA to gauge consumption levels and wage costs in the future, the survey’s four-week moving average on annual inflation expectations rose to 4.5%, the highest level seen since December 2015.

Although this increase could be put down recent strength in fuel prices, if sustained, it will lessen the chance of further interest rate cuts from the RBA, if only at the margin.

“Higher petrol prices have likely pushed inflation expectations up over recent weeks, but with last week’s CPI report suggesting that inflation is unlikely to turnaround sharply any time soon, we expect some of the recent rise in inflation expectations may be unwound,” said Felicity Emmett, head of Australian economics at the ANZ.

More broadly, Emmett described the confidence report as “encouraging” given “global political uncertainty”, pointing to resilient readings on household finances in particular as a reason for optimism.

“Importantly, households’ views of overall financial conditions as well as the ‘time to buy a household item’ index remain above their long term trends, suggesting a positive outlook for consumer spending,” she said.

Markets will get further clarity on that front in the weeks ahead with the ABS scheduled to release retail sales figures for December on Monday, January 6. That will be followed by the release of Australia’s Q4 GDP report, including household consumption, on Wednesday, March 1.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.