Australian households are feeling the pinch a little more this week. The ANZ-Roy Morgan consumer confidence index slipped to 67.7, a reading that keeps sentiment stuck near levels not seen in decades. The dip comes as inflation expectations ticked up to 6.2% and financial markets increasingly price in a rate hike from the Reserve Bank of Australia (RBA) in November.
What the numbers show
The weekly index, which measures how Australians feel about their personal finances and the broader economy, has been hovering around historic lows. A reading of 67.7 is among the weakest since the survey began in the 1970s. For context, a reading below 100 means pessimists outnumber optimists; readings in the 60s and 70s are exceptionally rare and signal deep household strain.
Inflation expectations—a measure of what consumers think prices will do over the next year—rose to 6.2%. That's a notable jump and a key number for the RBA, because if households expect higher inflation, they may demand higher wages, which can feed into actual price pressures.
The survey also showed that Australians were less upbeat about their own financial situation and the economy over the next 12 months. Longer-term views held up a bit better, but the overall mood remains sour.
One bright spot: big-ticket buying intentions
There was one positive in the data: the sub-index measuring whether it's a good time to buy a major household item jumped 5.6 points to 72.8. That might seem odd given the gloomy headline, but ANZ economist Sophia Angala noted that such a bounce can sometimes signal that consumers are starting to see prices stabilise or even fall, making them more willing to commit to large purchases.
Still, one good sub-index doesn't change the overall picture. Consumer confidence remains deeply depressed, and that matters for the broader economy because household spending is a major driver of Australian GDP.
Why the RBA is watching
The RBA has been on a tightening path to bring inflation back to its 2-3% target. With inflation expectations climbing and the labour market still relatively tight, markets now see a higher chance of a rate hike at the RBA's November meeting. A hike would add to the financial pressure on households with mortgages, which is one reason confidence is so fragile.
For everyday investors, the link between consumer confidence and the market is important. When households feel squeezed, they tend to spend less, which can hit the earnings of retailers, travel companies, and other consumer-facing businesses. That's a theme we've seen play out globally, as off-price retailers in the US have benefited from inflation-weary shoppers.
What it means for investors
For investors, the key takeaway is that the Australian economy is still grappling with the same inflation and rate pressures that have dominated markets for over a year. A November rate hike would likely strengthen the Australian dollar and put further pressure on rate-sensitive sectors like property and consumer discretionary stocks.
It's also worth noting that consumer confidence is a lagging indicator—it reflects how people feel now, not necessarily where the economy is headed. But when confidence stays this low for this long, it often signals that the pain from higher rates and living costs is far from over.
Investors should watch upcoming inflation data and RBA communications for clues about the November decision. If inflation expectations continue to rise, the RBA may feel compelled to act more aggressively, which could ripple through bond yields and equity valuations.
In the meantime, the resilience of consumer spending will be a key theme to monitor. As we've seen in other markets, inflation data is driving central bank expectations globally, and Australia is no exception.
The bottom line
Australian consumer confidence remains stuck near 50-year lows, and the latest weekly reading offers little hope of a quick turnaround. With inflation expectations rising and a possible RBA hike on the horizon, households are likely to remain cautious. For investors, that means staying alert to how consumer weakness might affect corporate earnings and the broader economic outlook.
