Australian consumer confidence fell sharply in December, reversing the tentative improvement seen the previous month, as renewed concerns over inflation and interest rates weighed on household sentiment, according to the latest Westpac-Melbourne Institute survey.
The headline Consumer Sentiment Index fell 9.0% to 94.5, unwinding much of November’s 12.8% surge and pushing the index back below the neutral 100 level, signalling that pessimists once again outnumber optimists. While confidence has improved materially from the deep troughs of 2024, the latest reading underscores the fragility of sentiment and the difficulty in sustaining a move into outright optimism.
The December pullback was broad-based. Views on the economic outlook and family finances deteriorated, while expectations around mortgage rates turned sharply more negative, highlighting the sensitivity of households to inflation and monetary policy developments. Homebuyer sentiment also weakened, with expectations for house price gains pared back, suggesting higher borrowing costs continue to constrain housing-related confidence.
The survey’s quarterly news recall questions shed further light on the drivers behind the decline. Inflation remained the most frequently recalled topic, with the tone decisively negative. Around 78% of respondents viewed inflation-related news as unfavourable, following upside surprises in Q3 inflation data and a strong initial read from the full monthly CPI in October.
Interest rate news also weighed more heavily on sentiment. 64% of respondents assessed coverage as unfavourable, a marked increase from September and June, reflecting growing concern that rates may remain higher for longer. News related to domestic economic conditions and employment was similarly viewed more negatively than three months earlier.
In contrast, international developments played a smaller role. Recall of global news fell to its lowest level this year, while the tone improved to its least unfavourable since June, partly reflecting easing trade tensions among Australia’s major trading partners.
Despite the overall deterioration, consumers remained broadly unfazed about labour market prospects, suggesting that employment stability continues to provide a partial buffer against cost-of-living pressures. Overall, the survey points to an Australian consumer that is no longer deeply pessimistic, but still cautious and highly sensitive to inflation and interest rate risks heading into 2026.
—
The sharp pullback in consumer sentiment is mildly negative for the Australian dollar at the margin, reinforcing expectations that domestic demand will remain constrained into 2026. For rates, the survey supports a cautious RBA stance, with weaker household confidence playing off against offsetting inflation risks, limiting the urgency for further tightening. As a result, AUD is likely to remain more sensitive to global drivers, particularly U.S. rates, risk sentiment and China-related news, than to domestic data in the near term, while front-end rate pricing should stay anchored around a prolonged hold scenario.
The Reserve Bank of Australia does not meet again until 2-3 February next year, with expectations for rate hikes next year firming up somewhat:
This article was written by Eamonn Sheridan at investinglive.com.