The Westpac–Melbourne Institute Consumer Sentiment Index saw a notable rise of 6.2%, increasing from 84.6 in September to 89.8 in October.
This marks the highest reading since the Reserve Bank of Australia (RBA) started its interest rate hikes over two years ago.
Although the overall sentiment remains cautious, the latest numbers suggest a positive shift in consumer outlook, especially as interest rate concerns lessen.
The recent drop in global interest rates and signs of easing inflation in Australia have reassured consumers.
“Consumers are no longer fearful that the RBA could take interest rates higher,” said Matthew Hassan (pictured above), head of Australian macro-forecasting at Westpac.
However, challenges around the cost of living remain a persistent issue, keeping overall sentiment relatively low.
There was a marked shift in consumer views on mortgage rates.
The mortgage rate expectations index dropped by 14.1% in October, reaching its lowest point since the RBA’s policy easing during COVID-19. This change signals that more than half of consumers now anticipate that mortgage rates will either stay steady or decrease in the coming year.
Consumer expectations for the economy saw a sharp rise, with the “economic outlook for the next 12 months” sub-index climbing by 14.3%.
The five-year economic outlook sub-index also rose by 8%, marking a return to levels not seen since May 2022.
While views on family finances showed more modest gains, there is a general expectation that financial pressures will stabilise.
The sub-index measuring whether it’s a good time to buy a major household item increased by 3%, though it remains below its long-term average.
Consumer confidence in family finances and spending suggests that, despite the overall improvement in sentiment, demand for big-ticket items may stay muted.
The unemployment expectations index dropped by 6.2%, indicating that fewer consumers are worried about job losses. This improvement was particularly notable among workers in the construction industry and in New South Wales.
Sentiment around buying a home remains cautious but showed a slight increase of 2.5%.
Local factors played a significant role, with buyer sentiment improving sharply in Queensland and South Australia, where government initiatives have supported first-time buyers.
In contrast, Western Australia and Victoria saw declines due to affordability issues and market conditions.
The house price expectations index rose slightly by 1.8%, with Victoria and New South Wales leading the gains.
However, price expectations softened in Queensland and Western Australia, where they had been higher in previous months.
Despite regional variations, most consumers (66%) still believe home prices will continue to rise over the next year.
The Reserve Bank board, which held the OCR steady at 4.35% during its September meeting, is expected to keep the cash rate unchanged in November.
However, significant changes in its messaging may be on the horizon, as the board could ease its “vigilant” stance on inflation, providing more relief for consumers, Westpac reported.
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