(Bloomberg) -- Australian consumer sentiment tumbled this month to the lowest level since August 2020 as a combination of rising cost of living pressures and the prospect of faster interest-rate increases spooked households.
The consumer confidence index dropped 5.6% to 90.4 points in May, indicating pessimists now far outnumber optimists, Westpac Banking (NYSE:WBK) Corp. said in a statement Wednesday.
Excluding shocks to confidence associated with the pandemic, May’s decline is the largest since June 2015, when a steep fall in global share markets was triggered by concerns about the stability of the European financial system and a slowdown in China.
The survey of 1,200 respondents was conducted over the week of May 1 to May 5, which included the larger-than-expected 25 basis point rate rise by the Reserve Bank of Australia to 0.35%.
“Two stunning developments are clearly unnerving consumers,” said Bill Evans, chief economist at Westpac. He cited first-quarter inflation on April 27 that showed headline consumer prices surpassed 5% for the first time since 2007, prompting the RBA to raise the cash rate last week.
“While headline inflation pressures may ease from this point, consumers are aware that the Reserve Bank plans to continue increasing the cash rate for some time,” Evans said. “The prospect of rising interest rates is clearly weighing on respondents despite the prospect of higher bank deposit rates.”
Assessments of the economic outlook also deteriorated in the May survey. The “economy, next 12 months” sub-index plunged 5.8% to 90.4 and the “economy, next 5 years” sub-index dived 4.1%.
The surge in prices continues to impact on attitudes toward spending with the “time to buy a major household item” sub-index -- an indicator of consumer spending outlook -- slumping 5.7%.
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