Consumer sentiment recovers amid rate cut hopes
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The news: Australian consumer sentiment lifted this month as benign inflation shored up consumer expectations that interest rates will be cut, according to the latest Westpac-Melbourne Institute Consumer Sentiment Index, which did not capture reaction to the temporary rollback of US-China tariffs announced on Monday evening.
The numbers: The index rose 2.2% to 92.1 in May, recovering of about a third of the index’s fall in April following US President Donald Trump’s 'Liberation Day' tariffs announcement.
However, the index is still 3.9% below its March level and remains in ‘firmly pessimistic’ territory.
The context: Westpac head of Australian macro-forecasting Matthew Hassan said there's been improvement in four of the five component indexes — which track family finances, expectations for the economy, and whether respondents think now is “a good time to buy a major household item”. The sub-index on expectations for family finances over the next 12 months has deteriorated.
“The Reserve Bank Monetary Policy Board meets on May 19–20. Westpac expects the Board to cut the cash rate by another 25bps to 3.85%. Latest updates show all measures of inflation are now back within the 2-3% target band,” Hassan said.
The federal election result was also a small positive, although sentiment was higher amongst those surveyed in the first few days following the election and tracked party lines.
The ASX 200 rose on Tuesday morning after US markets jumped in response to the 90-day easing of US-China tariffs. At 10:56am AEST, the index was up 0.65% to $8,287.30.
