The Westpac-Melbourne Institute Consumer Sentiment Index rose slightly in July, ticking up 0.6% to 93.1 from 92.6 in June, as consumers remained cautiously pessimistic amid economic uncertainty and a surprise decision by the Reserve Bank of Australia (RBA) to hold interest rates steady.
Matthew Hassan, Head of Australian Macro-Forecasting at Westpac, noted that the modest improvement masked a sharp drop-off in sentiment following the RBA’s July meeting.
Survey responses collected before the central bank’s decision showed a stronger index reading of 95.6, while those after the announcement dropped to 92. The rate hold, which many viewed as unexpected, effectively dampened what would have otherwise been a more robust confidence rise.
“This is the third time since late last year that events have conspired to undermine promising improvements in the consumer mood,” Hassan said, referencing similar sentiment dips in April following the Trump administration’s “Liberation Day” tariffs, and in November after a milder-than-expected RBA shift coincided with a surprise U.S. election result.
While the latest setback is less severe, sentiment remains stuck in the ‘cautiously pessimistic’ zone.
Consumers’ views on their finances showed a marked improvement, particularly in the lead-up to the RBA decision.
The ‘family finances vs a year ago’ sub-index jumped 5% overall, and was up more than 12% among those surveyed prior to the rate announcement.
Expectations for future finances also improved, with the ‘family finances, next 12 months’ sub-index gaining 2.6% to 101.4, moving back into net positive territory.
Consumers also became slightly more confident that interest rates would move lower in the year ahead. The Mortgage Rate Expectations Index dropped 1.7% to 83.1, its lowest level in thirteen years, signalling broad expectations for rate cuts to resume soon.
Expectations of the economy were mixed. The ‘economic outlook, next 12 months’ sub-index rose 1.8% to 94.1, while the ‘economic outlook, next 5 years’ fell 2.8% to 93.4.
Meanwhile, the Unemployment Expectations Index rose 1.1% to 128.7, indicating more consumers expect joblessness to rise in the year ahead.
Housing-related sentiment also weakened in July, following the RBA’s decision to keep rates unchanged. The ‘time to buy a dwelling’ index dropped 5.1% to 88.5, retreating from the cycle high recorded in June and falling well below the long-term average of 120.
The Index of House Price Expectations also fell, dipping 2.2% to 162.8, following June’s 12-year high.
Despite the decline, expectations remain elevated, with around 75% of respondents still predicting price increases over the next 12 months.
Looking ahead, the next RBA meeting is scheduled for 11-12 August. While a stronger-than-expected inflation print could lead the Bank to pause again, most analysts, including Westpac, still expect a rate cut.
Should the June quarter inflation data come in line with expectations and fall within the Bank’s 2 - 3% target range, it would likely clear the path for a 25 basis point cut in August, followed by another in November.
