July tax cuts, RBA’s pause a shot in the arm for consumer sentiment

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July tax cuts, RBA’s pause a shot in the arm for consumer sentiment

Australia’s consumer confidence rose in August following the introduction of tax cuts and after the Reserve Bank paused interest rates, though persistent inflation ******** a burden on households.

Sentiment advanced 2.8 per cent from the prior month to 85 points, with pessimists heavily outweighing optimists given a reading of 100 is the dividing line, a Westpac survey showed Tuesday. The index has held below 100 since March 2022.

“Consumers breathed a small sigh of relief,” said Matthew Hassan, a senior economist at Westpac. “The survey detail shows that cost of living and rate rise concerns are still weighing heavily.”

The RBA held rates last week at a 12-year high of 4.35 per cent while retaining a hawkish bent given inflation ******** stubbornly sticky. Policymakers are monitoring sentiment to try to get a handle on Australians’ spending plans.

A key uncertainty is how households respond to the tax cuts and energy rebates that kicked in last month. Economists expect government spending will strengthen further ahead of a likely 2025 election, complicating the RBA’s inflation ******.

“The component indexes show a clear improvement in the latest sentiment data, centered around family finances,” Mr Hassan said.

Household consumption accounts for more than half of ****** domestic product.

The survey was conducted in the week of the central bank’s policy meeting. It next convenes on September 23-24, with economists and financial markets predicting the RBA will again leave rates on hold. All eyes are on monthly employment report for July later this week.

Other key data points:

The family finances vs a year ago sub-index surged 11.7 per cent in August, the biggest monthly gain in nine yearsThe family finances, next 12 months sub-index rose 5.1 per cent to 96.8, the highest level since the rate tightening cycle began in May 2022The time to buy a major item sub-index edged up 0.6 per cent to 82.6The time to buy a dwelling index fell 5.8 per cent to 71.4, a new low for the year

Bloomberg

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