By Ambar Warrick
Investing.com-- A gauge of Australian consumer sentiment stayed negative for a ninth consecutive month in August as rising inflation and interest rates, coupled with a dour outlook on living costs dented sentiment towards the economy.
A survey conducted by Westpac Banking Corp (ASX:WBC) showed its consumer sentiment index fell 3% in August to lows last seen during the COVID pandemic in 2020. Inflation appears to be the biggest contributor to this downtrend.
The reading comes less than a week after the Australian central bank hiked interest rates, and said it would continue to do so, predicting elevated inflation levels this year. The bank is expected to raise rates by at least 50 basis points during its September meeting.
Australia is grappling with a spike in consumer price index inflation this year, with June’s reading coming in at 6.1%- its highest level since 2001. The inflation rate has nearly doubled this year.
The rising cost of fuel and food is the biggest contributor to inflation, and has severely dented consumer sentiment. As a result, participants in the Westpac survey were more uncertain over spending big on major household appliances.
"It is ominous that the pace of these price increases has been increasing rapidly," wrote Bill Evans, Chief Economist at Westpac.
The housing market is also steadily deteriorating, with only a small number of respondents saying that it is a good “time to buy a dwelling.” Participants holding a mortgage were especially dissuaded by the Reserve Bank’s recent rate hike, Westpac said, while sentiment among renters improved slightly.
On the other hand, sentiment towards Australia’s labor market remained underpinned, which in turn is keeping household spending steady.
"A vibrant jobs market along with solid household balance sheets are important explanations for the current resilient household spending despite deteriorating confidence," Evans wrote.
Separately, a survey by National Australia Bank) showed that business confidence improved slightly in August.