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Australian Consumer Confidence at Lowest Level Since 1990s Recession

Westpac-Melbourne Institute Index plummets after fourth RBA rate rise, driven by cost-of-living pressures and housing downturn

By LineZotpaper
Published
Read Time2 min
Sources3 outlets
Australian households are the most persistently pessimistic they have been since the early 1990s recession following the Reserve Bank of Australia's fourth rate rise of the year, with consumer confidence plunging about 20 percent since the RBA lifted interest rates to the highest levels since 2011.

The Westpac-Melbourne Institute consumer sentiment index, surveying between 28 September and 1 October, recorded an overall drop of 4.7 percent to 80.4 points. However, respondents surveyed after the RBA's 29 September decision recorded an index of 67.2 points, the lowest level since the late 1990s. This broadly aligns with the weekly ANZ-Roy Morgan consumer survey, which fell about 5 percent to 67.1 points.

Westpac's head of Australian macro-forecasting, Matthew Hassan, said sentiment had been extremely weak for the longest continuous period since the early 1990s recession. "Australian consumers remain stuck in a cost-of-living nightmare that seems to have no end in sight," Hassan said. "The latest RBA move looks to have badly rattled consumers. Responses over the course of the survey week show a very sharp deterioration after the decision was announced."

Assessments of family finances and buyer sentiment were the most affected categories. Mortgage holders were the most pessimistic home ownership subgroup at 77 index points, while outright homeowners recorded the largest decline in sentiment as the housing market downturn extended for a sixth month. Renters were the most optimistic group, unchanged at 84.8 points.

AMP economist My Bui said the decline was unsurprising given the September rate hike and rising fuel prices. "On our calculation the weekly petrol bill for a typical Australian household has gone up by $20 versus the beginning of the year," Bui said. "The worry with declining confidence is that it tends to correlate with household spending on a per capita basis: the downtrend in confidence over the past 12 months suggests consumption per person will likely fall further into contraction this year."

While fears of job losses are rising, with unemployment expectations ticking up 1.9 percent, the labour market presents mixed signals. Citi analysts Josh Williamson and Faraz Syed noted that job vacancies have increased to a two-year high of 122 points, which they said accords with business sentiment expectations of positive employment growth.

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Analysis

Why This Matters

  • Consumer confidence is a strong predictor of household spending, which is a primary engine of the Australian economy. The sustained pessimism suggests a significant downturn in domestic consumption is likely.
  • The cost-of-living crisis is deepening, with mortgage holders and families facing the dual pressures of rising loan repayments and higher weekly fuel bills.
  • The Reserve Bank faces a critical policy crossroads: continuing to raise rates to fight inflation risks a severe recession, while pausing could leave underlying price pressures unaddressed.

Background

The Reserve Bank of Australia has been engaged in a sharp monetary tightening cycle throughout 2026 to combat persistent inflation. The September rate decision marked the fourth increase of the year, bringing the official cash rate to its highest level since 2011. This has occurred alongside a downturn in the housing market and rising global energy costs exerting pressure on household budgets. The Westpac-Melbourne Institute Consumer Sentiment Index, a key measure of economic morale, has now recorded its most prolonged period of pessimism since the recession of the early 1990s.

Key Perspectives

Mortgage Holders and Impacted Consumers: This group is directly exposed to rising interest rates and cost-of-living increases. Matthew Hassan of Westpac describes their situation as a "cost-of-living nightmare" with no end in sight, while economist My Bui warns that consumption per person is likely to fall into contraction. The Reserve Bank: The central bank is continuing its aggressive rate hike strategy, demonstrating a prioritisation of curbing inflation over short-term consumer comfort and economic demand. The guidance suggests the RBA believes the economy can withstand, and requires, further tightening. Critics and Skeptics: The Guardian references an op-ed by Yanis Varoufakis arguing the rate rises are "the wrong medicine and an even worse alibi". Beyond this, the data itself acts as a critique; economists like My Bui note that the deep drop in confidence correlates strongly with falling consumption, raising the risk of a self-fulfilling economic contraction driven by a lack of confidence.

What to Watch

  • Official household spending data for the September and December quarters, which will confirm whether falling confidence translates directly into a spending contraction.
  • The RBA's next meeting on interest rates, which will reveal whether the board is swayed by the catastrophic consumer sentiment data or continues to prioritise the inflation mandate.
  • The divergence between the Citi analysts' optimistic view of business sentiment and rising job vacancies versus the consumers' rising expectations of unemployment, which will settle over the coming months.

Sources

Zotpaper

Written by software from the reporting listed above, scored by an automated standards desk, and published without a person reading it first. If something here is wrong, tell the editor and it will be put right.

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