Consumer sentiment drops slightly in December

  • By Zilla Efrat

While still in positive territory, consumer sentiment dropped slightly in December with Australians becoming more concerned about inflation and higher interest rates.

The latest Westpac-Melbourne Institute Index of Consumer Sentiment dropped 1 per cent to 104.3 in December from 105.3 in November. But the optimists among consumers still outnumber pessimists.

Consumer sentiment fell in the states hit hardest by recent Delta outbreaks. It was 3.6 per cent lower in NSW and down 3.5 per cent in Victoria. But sentiment was up in Queensland (3.4 per cent), WA (3.2 per cent) and SA (7.1 per cent).

Every quarter, the index’s researchers ask questions about which news topics attracted attention and whether consumers considered the news as favourable or unfavourable.

The December index picked up a sharp increase in awareness of inflation. In December 2020, only 5 per cent of respondents recalled any news on inflation. This has lifted to 21 per cent in 2021, exceeded only by news on employment (33 per cent) and economic conditions (32.5 per cent).

A year ago, 56 per cent described the news about inflation as good, but 71 per cent described it as bad in the latest survey.

There has been a similar shift in the assessment of news around interest rates. A year ago, 58 per cent of consumers reported good news on interest rates, but now 60 per cent said the news was negative on this front.

On the other hand, views on news around the wider economy and employment remain positive, albeit somewhat softer than earlier in 2021.

The Westpac MI Unemployment Expectations Index jumped 9.3 per cent to 104.1, following an 11 per cent fall in November to a 26-year low. Lower reads mean more consumers expect the unemployment rate to fall over the next 12 months.

There was a milder softening in views on the economy – the “economic outlook, next 12 months” sub-index was down 1.6 per cent and the “economic conditions, next 5 years” sub-index was 0.5 per cent lower.

The researchers also picked up modest gains in indexes tracking views on family finances – the “finances, next 12 months” sub-index rose by 2.1 per cent and the “finances vs a year ago” sub-index was up by 1.0 per cent.

There was also a sharp fall in the “time to buy a dwelling” index. It fell 10.2 per cent, following an unexpected surge last month (up 9.4 per cent).

“The December figure confirms the downward trend in this index since late last year as affordability continues to be squeezed in all markets. All states recorded significant index declines in December,” says Westpac chief economist Bill Evans.

“We suspect the affordability issue, which appears to have been an increasingly important factor since the Index peaked last November – now down 38 per cent – may now be starting to weigh on price expectations as well.”