Consumer confidence ‘bounces back’

Consumer confidence surged in July as Australians maintain a positive outlook about the domestic economy, a new survey shows.

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The Westpac-Melbourne Institute of consumer sentiment index rose 11.1 per cent in July to 113.1 points.

The survey was above 100 points, which indicates optimists outweigh pessimists, for the 13th consecutive month. It was the strongest monthly increase in the index from a base above the 100 level since the survey began in the mid-1970s.

“The solid base for consumer sentiment is coming from an upbeat view on the economy,” Westpac chief economist Bill Evans said.

“The component of the index assessing the economic outlook for the next 12 months rose 10 per cent while the five-year outlook surged 16.2 per cent,” Mr Evans said. “Consumers remain upbeat on the economy with both components still well above their long run averages.”

The rebound in consumer confidence reversed declines in the previous three months.

The survey of 1200 Australians aged at least 18 occurred in the week when the Reserve Bank of Australia (RBA) left the overnight cash rate unchanged, equity markets rallied and the national jobless rate remained at 5.1 per cent.

Mr Evans said Westpac was surprised by the strength of the rebound in consumer confidence.

“We saw a comparable surge in confidence in 2009 when households realised that Australia had avoided recession, but at that time the Index was recovering from a much lower level,” Mr Evans said.

“This is the strongest monthly increase in the index from a base above the 100 level since records began in the mid-1970s.” Citigroup senior economist Joshua Williamson said recent economic and political news lifted consumer sentiment.

“The previous falls were based on rising official interest rates, falling equity markets and some concern around the previous form of the resources rent tax,” Mr Williamson said.

“Since the previous survey, Australia has a new more popular prime minister, certainty about the form of the resources rent tax and stable official interest rates.”

Mr Evans said a strong inflation report for the June quarter due for release on July 28 would prompt the central bank to lift the overnight cash rate. T

he RBA left the cash rate at 4.5 per cent for the second consecutive month on July 6.

“We expect it to be sufficiently high to trigger a rate hike at the August meeting,” Mr Evans said.

“The return of confidence levels to 11.4 per cent, above its long term average, only adds to the case for a rate hike.”