The Westpac-Melbourne Institute consumer confidence index dipped in December, yet Australian consumers remain optimistic heading into the new year.
The consumer confidence index fell away slightly in December, dropping 1.0% from 105.3 reported in November to 104.3.
For Australian consumers, a score over 100 generally implies confidence across the population.
Westpac Chief Economist Bill Evans said while high vaccination rates have allowed the ‘Delta states’ to reopen, there appears to be a heightened sensitivity to virus developments in New South Wales and Victoria.
This is likely said to be due to the emerging Omicron strain and the continued circulation of COVID locally.
"There was a clear difference in responses between the states hit hardest by recent Delta outbreaks and the rest of Australia," Mr Evans said.
"Both NSW and Victoria posted significant falls (down 3.6% and 3.5% respectively) while sentiment was up in Queensland (3.4%), WA (3.2%) and SA (7.1%)."
Despite these drops in positive sentiment across 'Delta states', with borders reopening in time for spreading holiday cheer, optimists appeared to outweigh the pessimists.
"A positive national Index is very important for the strong growth outlook for 2022, which is dependent on a surge in consumer spending as households re-emerge from restrictions and draw down on the large savings accumulated through the COVID lockdown periods," Mr Evans said.
Australian consumers seek clarity on inflation, interest rates
Aside from the recent developments around Omicron fuelling cautious consumer sentiment, Mr Evans believes the sharp increase in awareness towards inflation and interest rates contributed to the decrease in consumer confidence.
"In December 2020, only 5% of respondents recalled any news on inflation," Mr Evans said.
"This has lifted to 21%, exceeded only by news on employment (33%) and economic conditions (32.5%).
"Assessment of the quality of inflation news has deteriorated sharply from 56% describing the news as good a year ago compared to 71% describing it as bad in the latest survey.
"There has been a similar shift in the assessment of news around interest rates (17% respondent recall), compared to a year ago when 58% of consumers reported good news on interest rates but now 60% are reporting negative news on this front."
Property market showing signs of slowing down
Mr Evans notes there was a sharp fall in the ‘time to buy a dwelling’ index (down by 10.2%), off the back of an unexpected surge last month (up 9.4%).
"The December index confirms the downward trend in this since late last year as affordability continues to be squeezed in all markets," Mr Evans said.
"The affordability issue, which appears to have been an increasingly important factor since the Index peaked last November (now down 38%), may now be starting to weigh on price expectations as well."
The Westpac-Melbourne Institute Index of House Price Expectations fell by 1.3% and is now 8% off its peak in April.
Mr Evans said consumers have become more cautious of ‘riskier’ options for their savings, with real estate falling 7.3% to a 25-year low in the 'wisest place for savings' index.
"We expect that this question largely reflects affordability concerns rather than expectations of capital gains," Mr Evans said.
"Australian consumers positive yet 'Delta states' cautious of the road ahead" was originally published on Savings.com.au and was republished with permission.