Among those surveyed in Westpac's consumer sentiment survey after October's monetary policy decision, 63% expected mortgage interest rates would rise over the next twelve months, up from 52.3% in September.

In spite of this, overall consumer sentiment rose 2.9% in October, the Index rising to 82.

Australians are more confident about the financial security of their families, with confidence rising in October for the financial outlook for families over the next twelve months, up 2.6% compared to September, but still well below the long term average.

Overall, consumer confidence remains in 'deeply pessimistic' territory, which means per capita spending is likely to further contract throughout the rest of the year.

The jump in expectations for further cash rate increases is likely partly down to the CPI inflation indicator, which rose 5.2% over the twelve months to August '23.

Much of this was driven by a surge in fuel prices, but inflation within the service industry has also been more persistent than expected.

Along with the weak Aussie dollar, these are the major risk factors that could see the RBA opt to take the cash rate above 4.10%, where it has sat since June.

Matthew Hassan, senior economist at Westpac, said increased expectations for high rates could also be influenced by the often underlooked Australian savers, who benefit from high deposit returns.

"Across sub-groups, the latest increase in interest rate expectations has been driven by freehold homeowners and older
households rather than households with a mortgage," Mr Hassan said.

"As such, it may be more about hopes of improved returns for the 'deposit belt' than fears of further rate hikes for the 'mortgage belt'"

He said that even if the RBA had to revise near term headline inflation forecasts, this probably wouldn't be enough in itself to prompt further rate increases, but said surging fuel prices and persistent service price inflation are potential upward risk factors.

"If there are further surprises in the September quarter CPI, the next few [RBA] meetings could be a little more live than the one in October," he said.

Short term pain expected?

While consumer sentiment rose overall, Aussies were less optimistic about the short term outlook.

Confidence about economic conditions over the next twelve months dropped 0.2% (compared to a 2.1% increase for the next five years), while a 7.6% increase to the 'Time to buy a household item' indicator suggests Australians continue to expect upcoming price increases.

The Unemployment Expectations Index also dropped 2.7%, with RBA modelling suggesting unemployment is likely to rise to about 4.5% by late 2024.

Westpac consumer sentiment Index

Historical average September '23 October '23 Monthly change
Overall consumer sentiment 100.9 79.7 82.0 +2.9%
Family finances vs a year ago 88.6 61.5 63.1 +2.7%
Family finances over next 12 months 106.9 91.6 93.9 +2.6%
Economic conditions over next 12 months 90.8 78.5 78.3 -0.2%
Economic conditions over next 5 years 92.0 90.5 92.4 +2.1%
Time to buy a household item 125.0 76.6 82.4 +7.6%
Unemployment expectations (Lower index score means consumers expect unemployment to rise) 129.0 130.8 127.3 -2.7%

Time to buy property?

According to the CoreLogic home value index, property prices rose 0.8% in September, the eighth consecutive month of growth.

Australian property prices are on track to reach new nominal highs by November, fully reversing the record declines that occurred over the second half of 2022.

Accordingly, there was a 3.8% increase in house price expectations in October, as well as a 4.8% increase to the 'Time to buy a dwelling' index.

Historical average September '23 October '23 Monthly change
Time to buy a dwelling 121.2 72.5 76.0 +4.8%
House price expectations Index 125.8 154.6 160.4 +3.8%
Interest rate expectations index 154.1 146.7 164.6 +12.2%

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