Investing.com -- Australian consumer sentiment deteriorated in early-August, a private survey showed on Tuesday, as fears of sticky inflation and worsening economic conditions largely offset optimism over a potential end to the Reserve Bank’s rate hikes.
The Westpac-Melbourne Institute consumer sentiment index fell 0.4% in August, Westpac said in a statement. This was after sentiment saw a mild rebound in July.
The Reserve Bank of Australia’s (RBA) decision to hold interest rates steady for a second straight month in August appeared to have had little effect on sentiment, Westpac said, as consumers continued to fret over a deteriorating economic outlook.
The RBA’s warning that more interest rate hikes will likely be required also limited optimism over a pause in the bank’s rate hikes. Westpac said that most consumers surveyed in August were still expecting rates to move higher this year.
Australian consumers have faced mounting pressure over the past year from rising interest rates and high inflation. While inflation has retreated from peaks hit earlier this year, it still remains well above the RBA’s annual target range.
Despite a small rebound in July, consumer sentiment remained close to record lows seen during the 2020 COVID-19 pandemic, and has shown little sign of improvement.
“Sentiment is unlikely to stage a sustained lift from current deeply pessimistic levels until inflation – both as measured officially and experienced by consumers day to day – is much lower and interest rates are more firmly on hold,” Matthew Hassan, senior economist at Westpac wrote in a note.
The RBA has also warned that economic activity will moderate further this year, and that interest rates are expected to remain higher for longer, pressuring household savings and spending.
The Westpac survey showed that consumers turned more pessimistic about buying a house, amid increasing expectations of higher house prices and mortgage costs.
But Westpac also expects the RBA to keep rates on hold for at least the coming month, and that signs of an extended pause in future hikes were increasing.
The RBA hiked interest rates by a cumulative 400 basis points over the past year- the effects of which are expected to weigh heavily on the Australian economy.