Australian consumer sentiment slides to 80.4 after the RBA’s rate rise

The Westpac-Melbourne Institute Consumer Sentiment Index fell 4.7% to 80.4 in October from 84.4 in September, according to data released on Tuesday⁵. Australian consumer confidence plunged to its worst level since the 1990s¹. The Australian Financial Review described the reading as a recession-era low².

The survey was conducted between 28 September and 1 October and covered 1,200 adults^1,6. Responses during the survey week showed a very sharp pull-back after the Reserve Bank’s decision⁴. The central bank had lifted official interest rates to a 15-year high the previous week³.

The Age described the result as a key gauge of consumer sentiment falling to a historic low after the Reserve Bank’s move, and quoted households describing a cost-of-living nightmare³.

Why it matters to investors

This is a developed-market household sector reacting to a rate rise rather than to a shock in employment or prices alone. The gauge fell to a historic low immediately after the Reserve Bank moved, and the survey timing captures the response within days of the decision^3,4.

Households are also marking up their expectations for the cost of credit. Consumers’ mortgage rate expectations are near a cycle high following the hike, alongside the headline index fall of 4.7% to 80.4⁶.

The political dimension is not separate from the market one. The fall to a recession-era low was characterised as a fresh blow to Treasurer Jim Chalmers, which puts fiscal support back into the discussion at the same time as monetary policy is tightening².

The scale of the monthly move also matters. A 4.7% fall in a single month, from 84.4 to 80.4, is a step change rather than a drift, and it was recorded in a survey that closed within days of the rate decision^1,5.

What to watch

The first question is whether the drop proves to be a one-month reaction or the start of a trend. The index has fallen from 84.4 to 80.4 in a single month, and the survey period covers only the days from 28 September to 1 October, so the next monthly reading will show whether the pull-back persisted once the initial reaction faded^1,4,5.

The second is the pass-through into spending. Confidence at a level last seen in the 1990s, combined with mortgage rate expectations near a cycle high, is the combination that historically precedes a retrenchment in household demand^1,6.

The third is the Reserve Bank’s next move. Rates are already at a 15-year high, and the sentiment collapse followed directly from the last increase, which sharpens the trade-off at the following meeting^3,4.