Fuel price relief and easing rate fears provide modest relief to households
The Westpac–Melbourne Institute (MI) Consumer Sentiment Index rose 4.1% to 83.9 in July from 80.6 in June, offering a tentative sign that the worst of the sentiment downturn may be passing — though the result still places Australia's consumers firmly in pessimistic territory, with the index sitting in the bottom 10% of readings across the survey's 50-year history.
Daily responses during the survey week showed sentiment weakened noticeably as tensions in the Strait of Hormuz escalated, underscoring how exposed household confidence remains to developments abroad.
Consumer Sentiment Index
Sources: Westpac Economics, Melbourne Institute
"Some of the July improvement looks to be relief that 'worst case' scenarios ... are not playing out," said Matthew Hassan, head of Australian macro-forecasting at Westpac.
Family finances
The 'family finances vs a year ago' sub-index rose 5.6% to 71.1 in July, though it remains 14% below its level at the start of the year, prior to the conflict and interest rate increases. Lower fuel prices appear to be the primary driver, with the national average pump price falling to $1.60 per litre during the survey week, unwinding the spike associated with the Middle East conflict. Renters, younger Australians, and low-income earners — subgroups more sensitive to fuel costs — recorded the strongest gains.
The 'family finances, next 12 months' sub-index posted a sharper rebound, rising 13.4% to 96.5. Mortgage holders recorded a particularly large improvement of 23%, pushing their sub-index to 99.4. "The index level is now consistent with marginal rather than widespread pessimism," Hassan (pictured right) said.
Rate expectations
The Westpac–MI Mortgage Rate Expectations Index fell 5.8% to 162.6 in July, down 10% from its May peak. Around 60% of those surveyed still expect mortgage rates to increase over the next 12 months, but this is down from 66% in June, driven largely by fewer consumers anticipating rises of more than one percentage point.
The RBA's decision to hold the cash rate at its June meeting appears to have tempered expectations of a rapid successive series of hikes. Uncertainty remains elevated, however, with 17% of respondents reporting they do not know where rates are headed — the highest share since March 2022.
Westpac expects a further 25-basis-point rate increase from the RBA Board at its August meeting, contingent on the June quarter CPI update due 29 July showing inflation running above target. The board next meets on 10–11 August.
Economic outlook, spending, and unemployment
Consumer views on the broader economy showed little change. The 'economy, next 12 months' sub-index edged up 0.6% to 78.3, and the 'economy, next 5 years' sub-index rose 0.7% to 87.1. Both readings remain 10 to 12 points below their long-run averages.
The 'time to buy a major household item' sub-index moved marginally higher, up 0.5% to 86.8. The index remains around 36 points below its long-run average of 123, reflecting persistent pressure on household purchasing power.
Consumer concern about job losses eased considerably in July. The Westpac–MI Unemployment Expectations Index fell 7.1% to 129.9 — a lower reading indicates fewer consumers expect unemployment to rise — bringing it back in line with its long-run average of approximately 129.
Housing sentiment
The 'time to buy a dwelling' index rose 5.3% to 85.4 in July, extending a 12.6% bounce recorded in June. Nonetheless, the index is still recovering from a near-record low of 72 in May, which sat almost 50 points below the long-run average of 119.
By state, buyer sentiment was least pessimistic in New South Wales (90) and Victoria (91), where dwelling prices have been declining. Sentiment was more downbeat in South Australia (83), Queensland (82), and Western Australia (70), where prices have been rising.
The Westpac–MI Index of House Price Expectations fell 8% to 118 in July, a three-year low. For the first time since March 2023, fewer than half of respondents (47%) expect prices to rise over the next 12 months. A further 29% expect prices to fall, 19% expect no change, and 6% indicated they did not know. "This is the first time since March 2023 that there was not an outright majority of consumers expecting prices to rise," Hassan said.
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