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By Brett Warren

As higher rates and inflation bite, consumer sentiment falls

How is consumer sentiment being affected by the continuous news about higher interest rates and rising inflation?

To be frank...quite badly!

The latest data from NAB showed that consumer sentiment fell 3.0% month on month in July to 83.8 from 86.4 to be at its lowest level since August 2020.

The fall in July represents its seventh consecutive month of decline and the cumulative fall of -19.7% since December 2021 is equivalent to that seen in prior downturns.

Sentiment fell in the first two months of the pandemic by -20.8%; and in the six months leading into the GFC by -29.7%.

Australian Consumer Confidence 12 July

The  NAB survey period again partially overlapped with the RBA rate decision on 5 July with the survey period being 4-7 July.

Not surprisingly those surveyed after the RBA meeting had consumer sentiment levels 7.4% below those surveyed prior to the meeting.

That is clearly indicative of rates starting to weigh on consumers, whereas to date it has been primarily driven by too high inflation.

Interestingly while consumer sentiment has plummeted over the past seven months, unemployment expectations have been relatively steady at low levels (up just 1.1% in the month and 0.2% year on year).

Australian Confidence Unemployment Rate Expectations 12 July

What are the implications of these results?

Tapas Strickland, Director of Economics and Markets at NAB explained...

 "Inflation and rate concerns have clearly exploded in the survey.

The latest data shows the inflation concerns, along with higher rates, are impacting sentiment and highlights the possible sensitivity of households to a disposable income hit and to higher rates.

This notion is also being seen globally and it will be important to monitor household consumption trends as rates normalise."

Consumer Confidence Around The World Deviation From Average

Other findings from the report

As can be seen in the chart below, the NAB consumer sentiment survey is comprised of five sub-indexes with the economic outlook indexes seeing sizable falls this month.

  • Personal finances were steady for the next 12m at +0.1% and fell a little compared to a year ago at -2.8%.
  • The ‘time to buy a major household item’ sub-index also fell slightly by 0.9%.

Consumer Sentiments Components Deviation From Average

  • There was a 5.6% fall in the ‘house price expectations’ series in this survey, while ‘time to buy a dwelling’ rose 6.6% - but still remains at its lowest levels since May 2008.
  • Higher interest rates are clearly biting with price falls being seen in Melbourne and Sydney recently.
  • According to the RBA advertised fixed rates for owner-occupiers are now at 5.66%, a 352bp increase since its low of 2.14% in early 2021, and fixed rates are now at their highest level since September 2012.

Time To Buy A Major Household Item And Dwelling 12 July

Source of charts and commentary: NAB Market Research

About Brett Warren Brett Warren is National Director of Metropole Properties and uses his two decades of property investment experience to advise clients how to grow, protect and pass on their wealth through strategic property advice.
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