Consumer sentiment sinks to 15 year low - Sydney Morning Herald 11-6-08
Consumer sentiment tumbled 5.6% in June to its lowest in more than 15 years, as rising food and petrol prices stretched household budgets.
The monthly Westpac-Melbourne Institute survey shows consumer sentiment has fallen to 84.7 points, almost a third lower than in June 2007, and remained below 100 points for a fifth straight month indicating pessimists outnumber optimists. The reading is now at levels not seen since December 1992 when the economy was emerging from the country's last recession.
''Petrol prices are likely to have been the main culprit behind for this sharp fall in the Index," said Westpac chief economist Bill Evans, in a statement. "The price of petrol surged by 7.6% from $1.45 a litre to $1.56.''
More pain may be ahead as the effects of soaring oil prices flow through to the Australian market. Crude oil prices jumped to a record $US138.54 a barrel at the end of last week, with the price bulge likely to be felt at the local bowser in the weeks ahead.
The Reserve Bank's four interest rate rises since August - supplemented by increases of their own by commercial banks - are also adding to the burden of households. Today's drop in consumer sentiment reading, though, won't alone signal to the central bank that its higher rates are doing enough to curb demand and help bring down inflation.
"The relationship between consumer confidence and retail sales isn't very tight," said ANZ economist Riki Polygenis. "So while (consumer confidence) might suggest some weakness in retail sales it doesn't suggest outright falls."
One reason why consumer sentiment may not yet be translating in shoppers holding on to their cash is that unemployment remains near three-decade lows. Economists predict data out tomorrow will show the economy created 13,500 new jobs last month, extending the increases to 19 consecutive months, according to Bloomberg.
Previous large drops in the consumer sentiment index typically occured around the time of interest rate rises, Mr Evans said. The June reading comes three months after the most recent rate rise although RBA central bank governor Glenn Stevens warned last week rates may have to go higher if inflation doesn't ebb.
''There was only one month (September 2005) when we saw a larger percentage fall (in consumer confidence) that was not linked to higher rates,'' Mr Evans. ''That fall (14.6%) came in response to a sharp increase in petrol prices following Hurricane Katrina in the US.''
Inflation, now running at a 16 year-high, ranked high on the minds of consumers, generating a response from 61.8% of people who said it was a news item they recalled - a jump of 15.2% from a year ago.
Inflation topped even interest rates with 56.4% of consumers saying they had heard news about it.
Perhaps surprisingly, the confidence of consumers holding a mortgage fell less than tenants and those who own their home outright in the monthly survey.
Looked at annually, mortgage-holders' confidence dropped more - 33.8% - than the other two categories. Tenants' confidence has fallen 27.7% over the past year, while that of those who own their homes dropped 29.9%.
"Naturally consumers have become much more negative on inflation, interest rates, and domestic and international economic conditions over the last year," Mr Evans said.
