Interest rate hike fears shake consumer confidence after Omicron

Consumer confidence is shaken by the expectation of higher interest rates this year – just as Australians started spending again after the Omicron shock

  • The prospect of higher interest rates this year undermined confidence after Omicron
  • The ANZ-Roy Morgan consumer confidence index fell 1.9% last week
  • Follows Reserve Bank boss saying hike in cash rates a ‘plausible scenario’ in 2022










The prospect of higher interest rates this year has undermined confidence, just as consumers appeared to be recovering from the shock of the highly infectious COVID-19 Omicron variant.

The weekly ANZ-Roy Morgan Consumer Confidence Index – an indicator of future household spending – fell 1.9% last week, reversing gains from the previous week.

The fall coincides with Reserve Bank Governor Philip Lowe’s high-profile comment that there was now a “plausible scenario” in which the cash rate rises in 2022.

The prospect of higher interest rates this year has undermined confidence (stock image)

“This is a big change from Lowe’s earlier statements that interest rates may not rise until 2024,” said David Plank, Australia’s head of economics at ANZ.

The survey found that respondents’ opinions of their current financial situation fell by 7.8%, while future conditions fell by 3.5%.

Both sub-indices fell to their lowest levels since late 2020, when the economy was recovering from the second wave of the pandemic.

Western Australia suffered the biggest drop in confidence, dropping 8.1% due to relatively high COVID-19 infections and bushfires in the state.

However, separate data showed early signs that the impact of the Omicron variant on spending could be short-lived after being hit in late December and January.

In December, business confidence – a guide to future investment and hiring – plummeted with the emergence of Omicron at the end of 2021 (stock image)

In December, business confidence – a guide to future investment and hiring – plummeted with the emergence of Omicron at the end of 2021 (stock image)

The Commonwealth Bank’s Household Spending Intentions Index fell 10% to 103.8 in January, with Omicron likely accounting for a significant portion of that decline.

The index combines analysis of CBA payment data, loan applications and publicly available search activity on Google Trends.

“It’s no surprise that spending intentions fell more than normal in January due to the spread of Omicron, with the largest declines seen in the retail, entertainment and services sectors. to households,” said ABC chief economist Stephen Halmarick.

However, the bank’s latest credit and debit card data for the week ending Feb. 4 shows a broad-based pickup in spending growth, suggesting that consumer spending likely bottomed in early January and has picked up. steadily improved since.

“We continue to expect the Australian economy to grow by almost 5% in 2022,” Mr Halmarick said.

Meanwhile, the National Australia Bank will release its monthly business survey for January later on Tuesday.

In December, business confidence – a guide to future investment and hiring – crashed with the emergence of Omicron at the end of 2021, falling to a level below that seen at the start of the Delta strain blockages. .

Trading conditions, however, remained relatively stable.

The fall coincides with Reserve Bank Governor Philip Lowe's high-profile comment that there was now a 'plausible scenario' in which the cash rate rises in 2022 (stock image)

The fall coincides with Reserve Bank Governor Philip Lowe’s high-profile comment that there was now a ‘plausible scenario’ in which the cash rate rises in 2022 (stock image)

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