Consumer confidence sank to levels not seen since the early stages of the COVID-19 pandemic two years ago in response to last week’s larger-than-expected cash interest rate hike by the central bank.
The weekly ANZ-Roy Morgan consumer confidence index – a guide to future household spending – tumbled 7.6 per cent to 80.4 points, its lowest level since early April 2020.
“Outside of the pandemic, consumer confidence hasn’t been this low since January 1991, the midst of the early 1990s recession,” ANZ head of Australian economic David Plank said.
The percentage of respondents who expect “good times” for the economy over the next five years dropped to 10 per cent – the lowest level on record.
The downcast mood comes after Reserve Bank of Australia governor Philip Lowe warned inflation could reach seven per cent by the end of this year, requiring further interest rates hikes to bring it under control.
In his first appearance since last week’s board meeting, when the cash rate was jacked up by 50 basis points to 0.85 per cent, Dr Lowe said decisive action was needed in the face of rising inflation.
“We’ll do what’s necessary to get inflation back to two to three per cent,” Dr Lowe said in a rare television interview on ABC’s 7.30 program on Tuesday.
“I’m confident we can do that but it’s going to take time.”
He said it was not unreasonable to expect the cash rate to reach 2.5 per cent.
His comments came as global share markets are in turmoil fearing the US economy could fall into recession if the Federal Reserve raises interest rates aggressively to combat its own inflation problem.
US inflation is at 8.6 per cent, its highest level in 40 years.
But Dr Lowe is confident the Australian economy will continue to grow pretty strongly over the next six to 12 months.
“There is still a bounce back from all the COVID-19 restrictions, people are spending in a way they weren’t able to do last year,” he said.
Dr Lowe said there was a big backlog of construction work to be undertaken and the number of job vacancies is extraordinarily high.
“So people can be confident the jobs will be there and in that environment, people will keep spending,” he said.
Prime Minister Anthony Albanese also does not believe that Australia is heading toward a recession.
“Australia has a difficult time because there are difficult global circumstances,” Mr Albanese told ABC Radio.
“But we will work our way through it. I’m positive about Australia’s future and I’m very positive that we can continue to create jobs and to have an economy that creates a better future.”
The monthly Westpac-Melbourne Institute consumer sentiment survey is due later on Wednesday.
