Consumer confidence: Confidence inches higher; inflation expectations in focus

• ANZ-Roy Morgan Australian Consumer Confidence made a partial recovery last week, rising 1.0%. Worryingly, inflation expectations declined further.
• Current financial conditions rose 0.8%, while future financial conditions were more upbeat, rising 3.6%. The ‘time to buy a household item’ index rose by 1.1% after four consecutive weekly declines.
• Economic conditions acted as a drag on the index, with both the subindices declining. Views on current economic conditions fell by 0.2% and future economic conditions by 0.8%
• The four-week moving average of inflation expectations declined by 0.1ppt to 4.0%, the lowest since 2016 and close to the series’ record low of 3.9%.

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ANZ’s Chief Economist, Richard Yetsenga, commented:

“Consumer confidence improved last week, offsetting some of the prior decline, and remaining above the long term average. An important trend that has emerged is an entrenched decline in inflation expectations. The 15% fall in petrol prices over the past three months may be a short-term influence on inflation expectations. But the decline since 2017 is concerning given the improvements in the labour market. Inflation expectations are close to the record low of 3.9% recorded in 2016, not long after the RBA last cut interest rates. In the US also, consumers’ inflation expectations haven’t responded to the tightening labour market as might have been expected over the past year. Deflationary forces are proving to be stubborn and would be a surprise to central banks.”

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