The size of the rate hike was a shock to most economists: the group expected a 25 basis point increase and so did the public.
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The larger-than-expected rate hike was the RBA’s tonic for a larger, faster rise in inflation, a feature that also greatly influences consumer sentiment.
These play into another important factor that influences whether the consumer sleeps well at night: house prices. Regardless of whether people are active buyers or sellers, the value of their home greatly influences their sense of wealth and financial well-being.
Recent readings on house prices suggest that stocks have already peaked and that most capitals are already falling. Estimates of how far they will fall by the end of this year and in 2023 vary, but the consensus is between 15 and 20 percent.
And then there’s the stock market crash we’ve been experiencing over the year that, over the last week, has turned into a defeat. On Wednesday, the market reached a year low.
This affects retirement balances, which for those close to retirement threatens to become a significant problem. For those in the early stages of their careers, the fall in retirement balances still fuels the wealth effect.
Regardless of whether people are active buyers or sellers, the value of their home greatly influences their sense of wealth and financial well-being.
The culmination of the fear factor is geopolitical and economic structures abroad. The energy crisis caused by the end of the COVID peak and the Russian war in Ukraine have deeply troubled consumers.
Confidence is an important economic measure because it informs consumers’ willingness to spend, and household consumption is Australia’s main economic driver.
Confidence surveys generally measure our willingness to buy an important item for the home and are a decent indicator of what might otherwise be seen as a consumer risk index.
Leading retailers, such as Bunnings, owned by Wesfarmers, could feel the pain of a slowdown in spending.
If we are unsure about the future of finance, we are less likely to risk spending on an important item (such as a major white product or TV), and opting for squirrel.
The measure of “time to buy an important item for the home” fell more than 14 per cent in one week and, according to the Westpac Melbourne Institute Consumer Sentiment Survey, the “time to buy” index housing “has now reached a minimum after the GFC.
Consumer sentiment then boils down to buying optional items and explains why stock market analysts have begun to lower the earning potential of discretionary retailers, such as Wesfarmers (owner of Bunnings, Kmart, Target and Officeworks). JB Hi-Fi, Kogan and Harvey Norman.
In a note, Macquarie analysts said, “The difficulty for corporate profitability will be to keep wage growth at a rate high enough to prevent the destruction of demand without eroding profitability.”
Since Macquarie made those comments earlier this week, the Fair Labor Commission has moved to raise minimum wages by 5.2 percent, a move that will put pressure on companies that are currently or will soon be dealing with business negotiation not covered by Fair Work. decision.
If there is one positive that needs to be taken away from its consumer sentiment index, it is that the Reserve Bank’s measures to take the heat out of inflation by raising rates are already beginning to gain strength.
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