Australia Consumer, Business Confidence Lift on RBA Rate Pause

Australia’s consumer confidence surged and business sentiment showed ongoing resilience after the country’s Reserve Bank left its key interest rate unchanged for the first time in its almost yearlong tightening cycle.

(Bloomberg) — Australia’s consumer confidence surged and business sentiment showed ongoing resilience after the country’s Reserve Bank left its key interest rate unchanged for the first time in its almost yearlong tightening cycle.

Consumer sentiment jumped 9.4% in April to 85.8, a Westpac Banking Corp. survey showed Tuesday. Still Westpac’s Chief Economist Bill Evans expects household spending this year to be lackluster with confidence remaining 10.4% below the level in April 2022, the month before the RBA began raising rates. 

A separate National Australia Bank Ltd. survey released an hour later on Tuesday showed business conditions eased to 16 points in March, remaining well above long-run average. Confidence advanced three points to minus-1.

“The survey suggests the economy is still holding up and indicates there has been some easing in inflation,” said NAB chief economist Alan Oster. “There is still a long way to go to bring inflation back down to the RBA’s target band and growth could be more volatile from there.”

RBA policymakers will welcome the reports after pausing their tightening cycle last week as they attempt to engineer a soft landing in the economy while bringing down inflation. The central bank has hiked by 3.5 percentage points since May last year to 3.6% and this month signaled the hurdle to further tightening is elevated. 

The RBA’s inflation target is 2-3% and the most recent monthly reading came in at 6.8%.

Governor Philip Lowe has said the board will closely monitor data on inflation, jobs, consumer spending and business surveys before making a decision on further increases. 

NAB’s survey showed employment eased a touch to 10 points and profitability was down to 13 points, while trading conditions were broadly flat around a “very elevated” 26 points. Forward orders edged higher to 4 points while capacity utilization held well above average at 85.1%.

Price and cost growth showed some encouraging signs of easing too. 

Labor cost growth dipped to 1.9% in quarterly equivalent terms from 2.6% in February, and purchase cost growth decelerated to 1.8% from 3%. Overall price growth slowed to 1.2% from 1.6%.

The Westpac survey, which was conducted April 3-6 and spanned the RBA board meeting, showed strong rises in sub-indexes around family finances and spending intentions. 

The sub index “family finances compared to a year ago” lifted 10.5%, “family finances over the Next 12 months” surged 12% and “economic outlook over the next 12 months” advanced 16.5%.

The “time to buy a major household item” sub-index rose 9.5% from its lowest level in the history of the survey. 

The solid reaction reflects the high sensitivity of Australian households to rate increases as most are on variable-rate loans. It underlines the fine judgment Governor Lowe needs to make in terms of cooling inflation without tipping the economy into recession. 

“With underlying inflation still likely to be in the 6.5%–7.0% range and the unemployment rate holding around fifty-year lows the case for extending the pause in May is likely to be challenged,” Evans said.

“The board’s decision will be to weigh the ‘here and now’ evidence against its two- year forecast.”

(Adds NAB business confidence survey.)

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