Surprise surge in consumer confidence

The Westpac – Melbourne Institute Consumer Sentiment Index rose by 7.8 per cent in August from 92.2 in July to 99.5.

“This is a very surprising result. Movements of the index of this magnitude are unusual and generally associated with highly significant events such as interest rate moves or Commonwealth budgets,” Westpac’s chief economist Bill Evans said.

“There is no comparable event they may have triggered this response although the solution may lie with international issues and housing.”

Last month’s 3.3 per cent drop in consumer confidence was largely believed to be reflective of concerns around global issues associated with Greece and the Chinese equity market.

That fall followed a decrease in June of 7.1 per cent (also influenced by concerns around Europe in particular) from the big increase in May (8.0 per cent jump), which was most likely associated with the Reserve Bank’s rate cut in early May and a positive response to the Commonwealth budget, Mr Evans said.

“It seems that with the tensions in Greece and the Chinese equity market no longer dominating the media consumers are feeling more relaxed.”

However, Mr Evans believes ongoing positive news around house prices may also have buoyed confidence.

“Certainly there was a much larger lift in the confidence levels of those respondents who wholly own a property (up 6.2 per cent) or who hold a mortgage (up 11.0 per cent) than those who are out of the housing market (up 4.3 per cent),” he said.

Westpac expects the RBA to leave rates on hold over the course of the remainder of this year and in 2016.