Australian households kept their overall confidence roughly unchanged last week, but a key measure of willingness to make big purchases fell sharply, a sign that high interest rates and rising inflation expectations are starting to bite.
The ANZ-Roy Morgan consumer confidence index edged up 0.2 points to 67.9 for the week of October 19th to 25th, according to ANZ, one of Australia's largest banks. The four-week average slipped to 67.7, still well below the long-run average and indicating that sentiment remains weak by historical standards.
While some forward-looking views improved—households' expectations for their own finances over the next year ticked up—the spending signal went the other way. The sub-index measuring whether it's a good time to buy a major household item dropped 6.3 points to 66.5.
That divergence matters because the big-ticket gauge tends to reflect pressure from interest rates and tighter budgets more quickly than the headline confidence number does. When households pull back on discretionary purchases like appliances, furniture, or electronics, it often signals that their disposable income is being squeezed.
Inflation expectations creep higher
At the same time, weekly inflation expectations rose to 6.3%, up from the previous week. That's a notable move for a measure that the Reserve Bank of Australia (RBA) watches closely, as it can influence how households and businesses set prices and wages.
ANZ economist Sophia Angala said the uptick strengthens the case for the RBA to raise its policy rate to 4.85% at its November meeting. The central bank has been on a tightening path to bring inflation back to its 2-3% target, and higher inflation expectations could make that job harder.
If the RBA does hike again, it would further increase mortgage repayments and the cost of consumer credit, squeezing household budgets even more. For retailers, that makes it harder to pass on higher costs to customers without losing sales.
What it means for investors
For investors, the drop in the big-ticket buying gauge is where the rate pressure shows up first. A weaker appetite for major purchases is bad news for Australia's consumer-discretionary companies, as it often translates into softer sales volumes and thinner margins—even if the overall confidence reading looks steady.
If the RBA lifts rates again, higher borrowing costs can hit households twice: through mortgages and through everyday credit like credit cards and personal loans. That usually shows up fastest in optional spending, which is exactly what the big-ticket sub-index captures.
The details of this week's survey point to more downside risk for near-term revenue expectations across the consumer-discretionary segment of the ASX. Retailers, home-improvement chains, and auto dealers are among the sectors that could feel the pinch if households continue to delay large purchases.
That said, the headline confidence number has been stuck at low levels for months, and a single week's move in one sub-index doesn't necessarily signal a dramatic shift. But the combination of weak sentiment, rising inflation expectations, and the prospect of another rate hike suggests the pressure on household budgets is not letting up.
For context, similar trends have been playing out in other economies. In the US, consumer sentiment has also slipped as inflation expectations climb, putting pressure on consumer-focused exchange-traded funds. And in Australia, the broader market has been reacting to global cues, with shares set to rise as oil eases and confidence ticks up.
Investors will be watching the RBA's November decision closely, as well as any further moves in inflation expectations. If the central bank follows through with a hike, the big-ticket spending gauge could fall further, and the pain for consumer-discretionary stocks may deepen.
For now, the message from this week's survey is clear: Australian households are feeling the squeeze, and they're increasingly reluctant to commit to big purchases. That's a warning sign for retailers and a reason for investors to keep a close eye on the consumer sector.
