Australia Consumer Sentiment Rises in July as Fuel Price Relief Lifts Confidence

Australia's consumer sentiment improved in July as lower fuel prices and easing concerns over further interest rate hikes provided households with some relief, although confidence remained firmly in pessimistic territory.

The Westpac-Melbourne Institute Consumer Sentiment Index climbed 4.1% to 83.9 in July from 80.6 in June. Despite the improvement, the index stayed well below the neutral 100 level, indicating that pessimistic consumers still outnumber optimistic ones.

According to Westpac Head of Australian Macro-Forecasting Matthew Hassan, the latest increase suggests households are becoming less concerned that worst-case scenarios involving soaring energy costs, higher borrowing expenses, and weaker employment conditions will materialize. However, he noted that financial pressure on families remains significant, with overall consumer confidence still among the weakest recorded in the survey's five-decade history.

The improvement was largely driven by stronger perceptions of household finances. Falling petrol prices, following the reversal of the Middle East-related fuel price spike, helped reduce cost-of-living pressures. Mortgage holders also became less worried about additional interest rate increases after the Reserve Bank of Australia (RBA) left its cash rate unchanged in July.

The survey found that around 60% of respondents expect mortgage rates to rise over the next 12 months, down from 66% in June, reflecting a modest decline in expectations for further monetary tightening.

Despite the rebound in sentiment, Australians remain cautious about the broader economic outlook. Confidence in making major household purchases stayed weak, while expectations for the housing market deteriorated further. The house price expectations index dropped 8% to its lowest level in three years, with fewer consumers expecting property values to increase over the coming year.

Westpac said the RBA's decision to pause interest rate hikes helped ease fears of a more aggressive tightening cycle. Nevertheless, the bank continues to forecast a 25-basis-point rate increase at the RBA's August meeting if upcoming quarterly inflation data shows price pressures remain elevated. The inflation figures, due later this month, are expected to play a crucial role in shaping the central bank's next policy decision.