Consumer sentiment still strong

The latest Westpac-Melbourne Institute consumer sentiment index was steady this month at a fairly buoyant level, despite last week's increase in interest rates.

The index reading for May was 10 per cent above its long-term trend level, suggesting that consumers were well prepared for the rate rise. Westpac's Bill Evans says that the resilience of the index to the Reserve Bank's rate increase suggests consumers were anticipating the rise and may be comforted by the general view that the rate cycle will be modest. If that confidence translates into a highly resilient consumer, particularly with regard to the property market, then the cycle will be at risk of overshooting the market's current target of 1 to 1.5 percentage points in total increase, he said.

The components of the index measuring how householders felt about family finances and their outlook improved strongly in May, but components measuring consumer perception of the broader economic outlook and whether now is a good time to buy major household items fell. The Commonwealth Bank's David Moore commented that the index suggests that household spending would be resilient in the face of adverse economic news.

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