Quick Bites | Consumer Sentiment Collapses

The Westpac–Melbourne Institute Consumer Sentiment Index fell heavily in April, declining 12.5% to 80.1 from 91.6 in March. This is a sobering data point, and highlights the despondency affecting Australian households amidst rising petrol prices, increasing food costs and the threat of higher interest rates.

Consumer Confidence Plumbing the Pandemic Lows

Source: Trading Economics

Australian consumers are being hit by another cost of living shock. The spike in fuel prices following the US-Israel-Iran War, plus the last 25bp interest rate increase, are putting domestic finances under intense pressure. A sharp deterioration in expectations suggests consumers are bracing for a return to the extended period of weakness seen during the 2022–24 inflation fight.

The April sentiment drop is the biggest monthly decline since the onset of the COVID pandemic. At 80, the Index is back near historical lows, albeit above the extremes seen at the onset of the pandemic and during the recessions of the early 1990s and 1980s.

All Index components deteriorated sharply in April. The Westpac–Melbourne Institute Consumer Sentiment Index is a composite measure based on 5 sub-indexes:

• one tracking assessments of family finances compared to a year ago;
• expectations for family finances and the economy over the next year;
• expectations for the economy over the next five years;
• and whether now is a good time to buy a major household item.

The biggest falls were across components tracking assessments of “current conditions”. Surging fuel costs are weighing particularly heavily on the “family finances vs a year ago” sub-index which plunged 16.7% to 66.8. This is an extremely low read, albeit a touch above the 65 average recorded between September 2022 and June 2024.

Average pump prices hit $2.40/litre in the first week of April, up 37¢ from the time of the March survey and 77¢ compared to early February. This is the biggest rise in the history of the survey, with the increase in percentage terms comparable to the rise recorded during the 1979 oil crisis.

Note that the survey was taken after the Federal government’s temporary halving in fuel excise tax, which came into effect on April 1, the 26¢/litre reduction contributing to a 12¢/litre decline in average pump prices in the first week of the month.

Near-term expectations for the economy and family finances also deteriorated sharply, suggesting consumers see little prospect for improvement and are bracing for more difficulties. The “family finances, next 12 months” sub-index dropped 13.9% to 84 and the “economy, next 12 months” sub-index dropped 12.4% to 75.3.

With the Strait of Hormuz still effectively shut and few signs of an end to the conflict, fuel prices look set to remain elevated. While the fall in near-term expectations was slightly milder than the hit to current conditions, these components have deteriorated by more since 2025. Rate rise fears also look to be shaping consumers’ near-term concerns. The wider inflation consequences of the global energy shock have yet to fully play out locally but clearly add to concerns that the RBA will need to increase interest rates again.

The Westpac–Melbourne Institute Mortgage Rate Expectations Index, which tracks consumer expectations for variable mortgage rates over the next 12 months, rose 3.9% in April, returning to recent cycle highs. 80% of consumers expect mortgage rates to increase over the next 12 months with 40% expecting a rise of over 1%.

This is having a dampening effect on buyer attitudes, with the “time to buy a major item” sub-index dropping 15%. This component has been particularly sensitive to cost of living pressures in recent years.

Consumers’ medium-term expectations for the economy have been more resilient, the “economy, next 5 years” sub-index recording a more moderate 5.1% decline. The view here seems to be that current challenges are difficult but will pass over time.

Sentiment amongst those living in regional areas recorded a sharper 16% fall to just 73. There were also notably larger sentiment declines amongst those working in the recreational services, manufacturing and construction sectors – all of which have higher exposure to rising energy costs and/or cyclical swings in activity.

Notably, the current shock is having a deeper impact on consumers’ labour market expectations than the 2022–24 cost of living crisis. The Westpac–Melbourne Institute Unemployment Expectations Index jumped 9.7% in April, meaning that consumers expect unemployment to rise over the year ahead.