After a prolonged period of sluggishness, financial confidence among Australian households is reaching its highest level in years. The rise in the consumer confidence index is closely linked to the Reserve Bank of Australia's (RBA) cash rate cuts, with sentiment returning to levels seen in May 2022, before the rate hike cycle began. This positive shift is reflected in the Westpac-Melbourne Institute Consumer Sentiment Index.
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03-12, 2025The survey reveals that consumer sentiment rose by 4% in March, from 92.2% last month to 95.9%. This means the index is only four percentage points away from the "neutral" level of 100, which represents an equal number of optimists and pessimists. Concurrently, after two consecutive quarters of decline, household spending grew by 0.4% in the last quarter of 2024, indicating a slight rebound in consumption data.
Strong economic data is accompanied by a slowdown in inflation and a slight improvement in household financial confidence following the first rate cut in more than four years. This reinforces confidence that interest rates will continue to fall. "The Reserve Bank of Australia's decision to cut interest rates in February, along with further easing of cost of living pressures, has provided a noticeable boost," said Matthew Hassan, Westpac's Head of Australian Macro Forecasting. "Regarding household finances, the situation continues to improve slowly, but optimism about the coming year is rising."
Buyer sentiment has shifted after what Hassan described as "the longest and deepest period of pessimism since the survey began in the mid-1970s." The extra purchasing power resulting from the rate cuts has prompted Australians to open their wallets to purchase major household items after putting it off for several years. In stark contrast, overseas consumers remain concerned about the uncertainties associated with a potential tariff war under U.S. President Donald Trump.
"The March survey results show that while consumers find domestic news significantly improved, news from abroad has become more disturbing," Hassan said. The March index found economic news from the United States "disturbing," with 82% viewing the international situation unfavorably. This suggests that despite domestic economic improvements, global economic uncertainty remains a concern for Australian consumers.
