Australia's Westpac-Melbourne Institute index of consumer sentiment surged 6.2 percent on the month from 81.0 in January to 86.0 in February. This strong increase follows a previous decline, extending the volatility seen in this index in recent months. Cost of living pressures have weighed on consumer sentiment, with survey responses also impacted heavily by monetary policy decisions over this period. This month's survey was conducted over four days last week, just before and just after the Reserve Bank of Australia left its main policy rate on hold at 4.35 percent.

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.