Aussies feel better about economy but worry about our personal finances

Westpac reports that our mood as consumers has improved slightly but optimism remains in extremely short supply.

This is likely due to ongoing doubts about the state of the economy, led by worries about high inflation, the lingering threat of more interest rate hikes and pressure on households to manage higher living costs generally.

So while the Westpac-Melbourne Institute Index of Consumer sentiment has ticked up slightly in September (from 79 to 82), we are apparently still in 'pessimistic territory', according to this latest report.

One way they measure this sentiment is by tracking our spending. Westpac says buyer attitudes have been markedly weaker over the last year compared with previous economic cycles, and this is largely due to the higher prices we face overall.

CommBank looked into this last month when it reported that 27% of Aussies don't have enough - or just enough - money to meet household expenses. It also noted that consumers are spending less on discretionary goods and services, redirecting savings to everyday food and essentials, bills, fuel and mortgage repayments.

While 27% is much lower than the majority, it's interesting that CommBank's study also showed nine in 10 Australians are adopting deal-seeking behaviours and reviewing their spending choices. 

Interest rates and hike hoopla

One storyline that persists for all of us is how the Reserve Bank will continue to handle the official cash rate. This benchmark interest rate is the level of interest charged between banks and lenders on loans, and therefore greatly impacts the cost of personal finance products such as home loans and savings accounts. 

Generally, the RBA moves this rate based on inflation, employment levels and the performance of our local economy. So when it holds the cash rate as it did last month for the third consecutive month (at 4.10%), presumably things are under control and their short-term goal is to improve the way we view the economy ... and our own money. 

And yet, the RBA’s extended pause on rate hikes has only seen a muted lift in sentiment, says Westpac. The reason for this might be the continued whispers of more hikes to come, which are floated into the public sphere by banking experts and media commentators as if to perpetually keep us on edge. As if heavy global events aren't enough, we might wonder.

And so consumers remain wary and weary of the potential for more rises in the months ahead, with 63% or people surveyed after the last RBA decision still expecting mortgage interest rates to rise over the next year, as per Westpac.

Indeed, only 7% of consumers expect rates to be cut over the next year. Westpac notes that some of this expectation probably relates to the surprise jump in the monthly CPI indicator (consumer prices), which showed annual inflation moving back above 5% in August. 

In short, consumers remain less than upbeat about the immediate prospects for our economy and yet when asked to consider the next few years, most of us are supposedly confident that the current cost of living problems will eventually be brought under control.

High priced living and the need to save money

But prices seem likely to fluctuate. For example, ING reported a 9% increase in motor fuel prices in August which is certain to repeat but maybe not by quite as much because excise duties won't reoccur until February next year. 

Excise duty is a commodity based tax levied by the government on the price of fuel, alcohol and tobacco products manufactured in Australia. It tends to impact businesses selling such goods and therefore is also felt by consumers in most cases.  

So it's not surprising then that alcohol and tobacco prices also rose in August, as per ING figures, because with rising inflation comes a rise in excise duties. Though once again ING says that this jump in August shouldn't occur again until next February when the same twice-yearly excise indexation is a factor.

For now, we seem stuck with some pretty high costs and many more people will undoubtedly feel compelled to save a little money where possible. Roy Morgan's early October report on consumer confidence reflected a continually weak appetite among Aussies to buy household items, though perhaps more telling is that about half of those surveyed say their families are worse off financially than a year ago. 

When there's lower incentive to buy, there's surely motivation to save.

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