A key measure of Australian consumer confidence fell to 16-year lows in July as record petrol prices and a sliding share market hurt family finances, in just the latest sign of spreading economic weakness. Other government data out on Wednesday showed demand for mortgages suffered its biggest monthly fall in eight years in May as high interest rates choked the housing market.
As a result, investors pared back the chances of a further rise in official rates from the Reserve Bank of Australia (RBA) and knocked the local dollar lower. "Consumers are deep in their cups and housing is in the basement," said Stephen Roberts, a research director at Lehman Brothers. "It's no longer a question about if interest rates are working, but whether they're working too well." The RBA raised rates twice early this year to a 12-year high of 7.25 percent as it battled to contain inflation, which itself was at 17-year peaks.
Since then the inexorable rise in petrol prices coupled with rising costs for everything from food to healthcare, has further eaten into consumer spending power. More recently, the local share market has taken a dive and hurt household wealth. The main stock index sank to two-year lows this week, a fall of 27 percent from the record high touched last November. All of which has taken a painful toll on sentiment. The monthly survey of 1,200 consumers by Westpac and the Melbourne Institute showed a drop of 6.7 percent in its main confidence index to 79.0 in July.
That was 34.6 percent down on the same month last year and the lowest reading since January 1992 when consumers were only just recovering from a tough recession. "These consistently weak reads are pointing to a period of very weak consumer spending and associated economic activity," said Bill Evans, chief economist at Westpac. Evans pointed the finger at petrol prices, which have risen over 15 percent in the past three months.
Not surprisingly, the survey's measure of family finances was down by almost 38 percent from July last year and respondents were increasingly gloomy about the prospects for the economy as a whole in the next 12 months.
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