Consumer sentiment dips in June

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The latest Westpac-Melbourne Institute Index of Consumer Sentiment fell by a modest 1% in June following the 8.5% jump in May.

The Index is now sitting on 102.2, with readings over 100 indicating that optimists outweigh pessimists.

Westpac senior economist Matthew Hassan says the small decline in June mostly represents a consolidation at improved levels.

“Last month’s surprise rate cut from the RBA was the main catalyst behind May’s rally and although confidence has slipped back a touch in June this is a fairly common pattern following an interest rate driven bounce. At 102.2 the Index is still in slightly ‘positive’ territory overall.”

Key findings from the Index include:

·      The Unemployment Expectations Index fell by 0.1% to 136.2.

·      Family finances compared to a year ago increased by 4.3%.

·      The one-year economic outlook fell by 3.8%

·      The five-year economic outlook dropped by 5.2%

·      The time to buy a major household item was unchanged.

·      The time to buy a dwelling index decreased by 2.7% following the 12.1% surge in May.

·      The Index of House Price Expectations surged by 3.6% to the highest level since September 2015.

According to Hassan, the RBA is unlikely to change interest rates at the 5 July Board meeting.

He says the RBA’s key considerations are around the inflation outlook.

“On its current forecasts the RBA does not expect inflation to return to the bottom of the band until 2017, and that is on the assumption of a further rate cut given that the Bank’s forecasts are based on ‘market pricing’ for rates,” says Hassan.

“The most important and immediate information about whether the RBA’s May assessment is correct will come from the June quarter inflation report which prints on 27 July, after the July Board meeting but ahead of the 2 August meeting. It is our assessment that the information in this report will confirm to the Board that another cut is indeed necessary.”

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