Australia's Westpac-Melbourne Institute index of consumer sentiment surged 9.4 percent on the month in April, increasing to 85.8 from 78.5 in March, which was its lowest level since April 2020 during the initial stages of the Covid-19 pandemic. Respondents reported stronger but still relatively subdued confidence about the outlook for the economy and their personal finances over the next 12 months, while their sentiment about longer-term economic prospects was steady and remained relatively weak.

The improvement in confidence reflects expectations and then confirmation that the Reserve Bank of Australia would pause its recent campaign of policy tightening. This month's survey was conducted over four days last week, just before and just after the RBA left rates on hold for the first time since last May. Around a third of respondents still expect at least another 100 basis points of interest rate increases over the next 12 months, but this is down from around half of respondents a few months ago. This has improved respondents' views about the outlook for house prices and their assessment of whether now is a good time to buy a house. The survey also indicates that respondents are now somewhat more confident about the outlook for the labour market.

The Westpac-Melbourne Institute Index of Consumer Sentiment is based on a survey of 1,200 consumers on their assessment of short-term and long-term prospective economic conditions and their own financial circumstances. The survey is conducted early each month, usually just before and just after the Reserve Bank of Australia's monthly policy meeting.

The pattern in consumer attitudes and spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is on whether economic growth is too strong and leads to inflation.

Consumer spending is the largest part of economic activity, so markets always closely follow consumer behaviour and sentiment. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. With this in mind, it's easy to see how this index of consumer attitudes gives insight to the direction of the economy. Just note that changes in consumer confidence and retail sales don't move in tandem month by month.