Continuing the trend of falling each month in 2022, the Westpac-Melbourne Institute Consumer Confidence Index fell a sharp 5.6% from April to reach 90.4 in May.
A score over 100 generally implies Australian consumers remain confident about the economy and the outlook on their finances.
Westpac Chief Economist Bill Evans said aside from the shocks to consumer confidence associated with the pandemic, this drop is the largest since June 2015 when a steep fall in global share markets was triggered by concerns about the stability of the European financial system and an economic slowdown in China.
"Two stunning developments are clearly unnerving consumers," Mr Evans said.
"Firstly, on April 27, headline inflation was reported to have lifted above 5% for the first time since 2007, then on May 2, the Reserve Bank raised the cash rate for the first time since 2010."
Expecting further rate rises, consumers were concerned about the near-term outlook for family finances.
The ‘family finances, next 12 months’ sub-index tumbled by 11.2% to reach 93.3.
As inflation continues to bite wallets nationwide, the survey notes attitudes towards spending are down with the ‘time to buy a major household item’ sub-index dropping by 5.7% to 92.6.
"To put this into perspective, this is near the low seen during Victoria’s ‘second wave’ outbreak in 2020, when health concerns were discouraging shoppers and prior to the pandemic, the lowest read since the GFC," Mr Evans said.
"The current level of this sub-index is 27% below its long run average of 126.3."
The Westpac-Melbourne Institute Consumer Confidence Index noted House Price Expectations fell by 9.4% to 121.41.
Further, the ‘’time to buy a dwelling’ index, fell a further 1.5% in May.
"This index, which is principally affected by affordability, is now at its lowest level since April 2008 when the RBA felt obliged to raise rates in both February and March despite the looming Global Financial Crisis to combat inflation," Mr Evans said.
"The outlook for house prices is also starting to deteriorate more rapidly, yet most respondents still expect house prices to rise over the next year."
Many economists have tipped house prices to diminish by 10 to 15% in the next two years, driven by rising interest rates.
Mr Evans noted the point at which interest rates become a damaging drag on the economy is unknown.
"The need to avoid an over-shoot later in the cycle is why, despite this disturbing tumble in Consumer Sentiment, we believe the prudent approach in June [by the RBA] would be to lift rates by 40 basis points rather than the 25 basis points that is currently favoured by most analysts," he said.
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