There has been a drop in consumer sentiment in May by a huge 7%, based on statistics collated by the Westpac–Melbourne Institute Consumer Sentiment Index.
The Index fell from 116.1 in April to 108.0 in May, but rising rates – not the budget, seemed to host consumers’ biggest concerns.
Confidence among respondents who had a home loan fell by 8.1 per cent in May, compared with average falls of only 2.3 per cent in response to the five previous rate hikes.
Westpac chief economist Bill Evans said the 25 basis point increase in the Reserve Bank’s official cash rate, rather than the release of the federal Budget, was the key contributor to the fall in consumer confidence.
According to the Index, on the question of whether the federal Budget would impact family finances over the next 12 months, most respondents (51 per cent) said it would have little impact, while 27 per cent indicated that their finances would worsen as a result of the Budget.
Eleven percent of respondents believed that their financial situation will improve, while ten percent were unsure.
“This result indicates that the response to the Budget was negative on balance but we expect that the most important factor causing such a large fall in the headline index was the rate hike,” Mr Evans said.
The results make it clear that consumers would experience significant financial difficulty if any further rate rises were to occur.