Consumer confidence may have lifted too early

Given the speculation — and ‘hope’ — the central bank would hold the cash rate in May as was its decision in April 2023, consumer confidence increased by 1.8 points, marking the “biggest weekly increase” since mid-February 2023.

The latest data from the ANZ-Roy Morgan Consumer Confidence Index came the week prior to the Reserve Bank of Australia’s (RBA) May rate hike, which took the official cash rate to 3.85 per cent.

The data showed ‘weekly inflation expectations’ fell 0.3 points to 5.0 per cent, and its four-week moving average was down 0.2 points to 5.3 per cent.

Across the states, consumer confidence fell in the south-eastern states (NSW, Victoria, and South Australia) and rose in Queensland and Western Australia as interest rates continue to rise.

ANZ senior economist Adelaide Timbrell said the increase in confidence was driven by outright home owners, whose confidence rose by 3.7 points on average, while renters and those paying off their homes saw more modest increases at 0.5 and 0.6 points, respectively.

Ms Timbrell attributed this increase to the uptick in housing prices seen in March and April.

She said: “Confidence about both finances and the economy rose during the week, with the strongest gain in confidence about ‘future economic conditions.’

“Inflation expectations also saw a slight drop to 5.0 per cent, which is the lowest result since the first week of 2023.”

Meanwhile, the index also showed that ‘current financial conditions’ rose 1.0 point, exceeding 70 for the first time since early March, and ‘future financial conditions’ gained 2.0 points.

‘Current economic conditions’ gained 2.3 points, while ‘future economic conditions’ jumped 4.0 points after three consecutive weekly declines.

‘Time to buy a major household item’ eased by 0.4 points but was still the second-strongest result since late February.

While the lift in consumer confidence may have come too early, Equifax data for the March 2023 quarter has shown consumers are taking on “more credit” than they can afford, with credit card applications in Australia and New Zealand increasing by 20.9 per cent compared to the same period last year.

However, in contrast, secured credit demand, derived from mortgages and auto loans, decreased by 11.1 per cent in Q1 2023 compared to the same period in 2022, with a fall in demand across both portfolios. 

Looking ahead, given ANZ’s expectations of a rate pause in May were incorrect, the major bank’s economists have reviewed its outlook suggesting another hike for August, taking its terminal rate (back) to 4.1 per cent.

“Our own concerns about the stickiness of services and non-tradables price inflation, the robustness in the labour market and the business sector, we will retain a 25-bp rate hike for August,” head of Australian economics Adam Boyton said.

[Related: Credit card demand increases as mortgage demand drops]