AU: Westpac-Melbourne Institute Index of Consumer Sentiment

Highlights

Australia's Westpac-Melbourne Institute index of consumer sentiment fell very sharply in April as fuel prices surged in response to the Iran conflict and the Reserve Bank of Australia increased policy rates. The index fell 12.5 percent from 91.6 in March to 80.1 in April.

Respondents to the survey reported a sharp deterioration in their assessment of the outlook for the domestic economy and their personal finances over the next twelve months and are also less confident about the five-year outlook for the economy. Respondents expect more rate increases over the next twelve months, with more than 80 percent expecting mortgage rates to rise and around 40 percent of them expecting them to go up by a full percentage point or more.

Definition

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.

Description

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.

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