Australians appear to be adjusting to a world of rising inflation and interest rates, aided by recent state budget initiatives.
The ANZ-Roy Morgan consumer confidence index jumped 3.7 per cent in the past week, building on a modest gain the previous week and after a near-eight per cent slump earlier in June in response to a big rise in interest rates.
“The improvement in sentiment doesn’t mask the fact that it remains exceptionally weak,” ANZ head of Australian economics David Plank said.
At an index of 84.7 points and below the key 100 level, it remains close to the levels seen during the depths of the COVID-19 pandemic in 2020 and still indicates that pessimists outweigh optimists.
Over the week, confidence was notably upbeat in NSW and Queensland, up 4.3 per cent and 5.2 per cent respectively, following their recent state budgets.
“Both the Palaszczuk and Perrottet governments announced policies targeting household cost of living pressures and access to more affordable housing,” Commonwealth Securities senior economist Ryan Felsman said.
The modest recovery in confidence came despite Reserve Bank governor Philip Lowe making a couple of public appearances, reiterating that more interest rate hikes are on the horizon in the battle against inflation.
While Dr Lowe does not expect to raise the cash rate by 75 basis points when the RBA board next meets on July 5 – a sizeable increase seen in the US this month – the discussion is likely to be around a 25 or 50 basis point hike again.
Economists generally expect the RBA will lean towards another 50 basis point increase, which will take the cash rate to 1.35 per cent, with the risks of further increases in the months ahead.
Dr Lowe also confirmed that the central bank now expects inflation to hit seven per cent late this year before moderating next year.
In its latest Economic Outlook for the Asia-Pacific, global credit rating agency Standard & Poor’s says growth is easing in the region as export demand softens in line with an expected slowdown among major global economies.
“However the recovery in domestic demand from COVID is largely intact, so overall growth has softened only modestly,” S&P says.
“This is especially so in Australia, India, Japan, Indonesia and the Philippines where growth is more domestic demand-oriented.”
It has cut its Australian growth forecast for 2022 to a still healthy 3.6 per cent, from four per cent previously, while nudging up its 2023 prediction to 2.8 per cent from 2.7 per cent.
Inflation has risen across the region, largely driven by higher energy and commodity prices but not by as much as in the US and Europe.
It expects inflation to average five per cent in Australia this year before easing to three per cent in 2023 and then 2.5 per cent in 2024 – the middle of the RBA’s two to three per cent target.
On the RBA cash rate, it expects further hikes to 1.75 per cent this year and extending to 2.5 per cent in 2023 and 2.75 per cent in 2024 before easing back to 2.5 per cent in 2025.
Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)