The Westpac-Melbourne Institute Consumer Sentiment Index saw a significant increase in October, reflecting easing concerns over interest rates and a slight improvement in housing sentiment.
Consumer pessimism eased in October as the Westpac–Melbourne Institute Consumer Sentiment Index rose 6.2% to 89.8, up from 84.6 in September.
This marks the highest reading in two and a half years, signaling a shift in consumer confidence as fears of further interest rate hikes subside.
While cost-of-living pressures continue to moderate, progress remains slow.
Consumers broadly expect family finances to stabilise over the next year. Home-buyer sentiment showed a slight improvement, though the overall outlook remains cautious.
House price expectations also increased, particularly in Victoria and New South Wales.
Head of Australian Macro-Forecasting, Matthew Hassan noted in the statement that, "This is the most promising update we have seen over the cycle to date."
While consumer sentiment remains largely pessimistic, optimism has been driven by international interest rate cuts and local signs of inflation moderation. As a result, fears that the RBA might raise rates further have significantly diminished.
However, concerns over the cost of living, particularly family finances, still persist, with slow progress in easing these pressures.
A notable shift occurred in consumers' expectations regarding interest rates. The Westpac-Melbourne Institute Mortgage Rate Expectations Index, which tracks projections for variable mortgage rates over the next 12 months, fell by 14.1% in October, marking a significant 33% decline since July.
This drop places the index at 106.4, the lowest level since the RBA was easing policy during the COVID-19 pandemic. Over half of consumers now expect mortgage rates to remain steady or decline over the next year, compared to just a quarter in July.
The headline Consumer Sentiment Index is derived from five sub-indexes, which cover family finances, the economic outlook, and household purchasing intentions. All five sub-indexes improved in October, with the most significant changes relating to economic expectations.