Consumer sentiment in focus as spending gathers steam
Australian households are increasing their spending despite diminishing interest rate cut hopes, creating difficulty for the Central Bank to keep inflation under control.
Consumer sentiment figures released by Westpac and the Melbourne Institute on Tuesday will provide insight into how long the recent uptick in household spending will last.
Spending for the year to November rose 6.3 per cent, the Australian Bureau of Statistics reported on Monday; this was the highest annual pace in more than two years.
VanEck Head of Investments and Capital Markets Russel Chesler said the strong spending result raises the possibility of inflation rising from the recent decline to 3.4 percent.
“Inflation remains high, and with the removal of government energy rebates, higher tariffs reflected in consumer prices and geopolitical conflicts affecting major supply chains (not to mention the stickiness of services and housing inflation), keeping it under tight control this year will not be easy,” he said.
“This means the RBA will probably need to raise the cash rate this year.”
However, there is a strong possibility that the momentum will run out when December’s spending figures are released in February.
The Westpac-Melbourne Institute Consumer Sentiment index, a rough forward-looking gauge of spending momentum, fell 9 per cent to 94.5 in December following hawkish warnings from Reserve Bank governor Michele Bullock about interest rate hikes in 2026.
A further decline into pessimistic territory should ease concerns that out-of-control spending will overinflate the economy.
NAB CEO Andrew Irvine said he remained optimistic about the prospects for the Australian economy this year.
Finding ways to increase productivity will be important to growing the economy, he said.
“The economy remains in good shape, supported by strong employment, and we do not anticipate further stimulus or rate cuts at this time,” Mr. Irvine said.
“The question for the Central Bank will be: Does it need to put some handbrake on this growth?
“The problem is we don’t have much capacity.”
Mr Irvine said Australia needed to change business risk aversion to encourage innovation and competitiveness.
“Bankruptcy in Australia is still viewed by many as a failure,” he said.
“In the US, failure is seen almost as a rite of passage, and many entrepreneurs have failed two or more times.
“We don’t have a lot of venture capital in Australia and banks don’t lend a lot for growth because of our risk environments.
“More incentives are also needed to help businesses start and grow.”
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