Australian consumers are still feeling pessimistic about the economy, even as fuel prices have dropped significantly, according to the latest Westpac-Melbourne Institute Consumer Sentiment Index. The index rose by just 2.1% in March to 84.4 points, remaining firmly in negative territory. Any reading below 100 indicates that pessimists outnumber optimists.
Consumer Sentiment Remains Weak
Westpac chief economist Bill Evans noted that the modest improvement was driven largely by a drop in petrol prices, but overall sentiment remains subdued. "The index is still at levels consistent with deep economic pessimism," he said. The survey was conducted after the Reserve Bank of Australia kept interest rates on hold at 4.35% in February, but before the March board meeting.
Fuel Prices Not Enough to Boost Mood
Fuel prices have fallen from around $2.10 per litre to about $1.85, providing some relief to household budgets. However, Evans pointed out that other factors, such as high inflation, rising mortgage costs, and a weakening labour market, continue to weigh on consumers' minds. The survey showed that the sub-index for family finances compared to a year ago fell 1.2%, while the outlook for the next 12 months improved slightly.
Economic Concerns Persist
The survey also revealed that expectations for the economy over the next 12 months rose by 3.1%, but the five-year economic outlook dropped 0.9%. Consumers remain cautious about spending on major household items, with that sub-index rising only 0.8%. Westpac expects the RBA to start cutting interest rates in September, which could help improve sentiment later in the year.
"The persistent weakness in consumer sentiment is a concern for the economic outlook," Evans said. "However, the combination of lower fuel prices, potential tax cuts, and interest rate relief later in the year should provide some support."
