Off the back of a dip in January, The Westpac-Melbourne Institute Consumer Confidence index fell away again in February dropping 1.3% from 102.2 to 100.8.
A score over 100 generally implies Australian consumers remain confident about the economy and the outlook of their finances.
Westpac Chief Economist Bill Evans said given the easing of health disruptions from Omicron and the strengthening of labour market, it is surprising improvement in the Index was not seen in February.
"Components of the Index that measure respondents’ assessments of their finances deteriorated," Mr Evans said.
"The ‘Finances vs a year ago’ sub-index slumped by 9.2%, more than reversing the surprise 7.5% lift in January, while the ‘Finances, next 12 months’ sub-index fell by 1.5% to be down by 4.3% since December."
Mr Evans puts these elevated pressures down to a combination of factors including Omicron-related disruptions to activity and earnings at the start of the year, the rising cost of living, and the prospect of rising interest rates.
The ‘finances vs a year ago’ sub-index demonstrated a sharper weakening for those more prone to cost-of-living sensitivities - particularly younger age groups, renters, retirees, and those on lower incomes.
With many economists forecasting their predictions for the year ahead, interest rate rise expectations are firming to a matter of when, not if amongst Australian consumers.
In response to the Westpac-Melbourne Institute Consumer Confidence survey, the proportion of respondents expecting an increase in mortgage rates over the next 12 months lifted from 55% in January to 66% in February.
More than one in four Australian consumers now expect interest rates to rise by more than a percentage point.
"This is the most pessimistic consumers have been about the interest rate outlook since August 2011, although on that occasion, rate hikes actually failed to materialise," Mr Evans said.
Westpac forecasts the first interest rate hike to take place at the RBA board meeting in August, with fellow big-four banks in CommBank viewing a November rate rise while ANZ believes households will have to wait until 2023 before rates lift.
Image by Slon Pics via Pixabay
Ready, Set, Buy!
Learn everything you need to know about buying property – from choosing the right property and home loan, to the purchasing process, tips to save money and more!
With bonus Q&A sheet and Crossword!