Australia's Westpac-Melbourne Institute index of consumer sentiment rose 0.1 percent to 92.2 in February from 92.1 in January.The index remains well above its recent lows but is still well below its long-term average, reflecting ongoing concerns about cost of living pressures.

Respondents to the survey reported improved confidence in the outlook for the domestic economy over the next twelve months and five years. Respondents also reported slightly improved sentiment about the outlook for family finances over the next twelve months and five years but were less positive about their finances relative to twelve months previously. Respondents, however, have become much more confident about the prospect of interest rate cuts, with more than half or respondents with a mortgage expecting mortgage rates to decline over the next twelve months, up from around a third just two months ago.

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.