Australian Consumer Sentiment Improves Slightly as Fuel Prices Ease

Australia’s consumer sentiment showed a modest recovery in May as lower fuel prices offered temporary relief to households facing ongoing financial pressure. The Westpac-Melbourne Institute Consumer Sentiment Index increased 3.5% to 83.0 in May, up from 80.1 in April, after suffering a sharp 12.5% decline the previous month.

The improvement was largely driven by falling petrol prices following the government’s temporary fuel excise reduction, which helped offset earlier price spikes caused by geopolitical tensions around the Strait of Hormuz. Despite the rebound, consumer confidence in Australia remains far below the long-term average of 100.3, highlighting continued concerns over inflation, rising interest rates, and the broader economic outlook.

The Reserve Bank of Australia (RBA) recently implemented its third straight interest rate increase in an effort to control persistent inflation. As borrowing costs continue to rise, many households expect mortgage repayments to become even more expensive over the coming year. Westpac’s Mortgage Rate Expectations Index rose 2.3% to 181.2, reaching its highest level in three years. According to the survey, 85% of respondents believe mortgage rates will continue climbing in the next 12 months.

Housing affordability also weakened significantly. The “time to buy a dwelling” index fell 16.1% to 72, marking its lowest level in 18 months. Higher home loan rates and elevated property prices continue to discourage potential buyers across the country.

Westpac noted that while easing fuel costs helped improve sentiment slightly, Australians remain cautious due to ongoing inflation pressures and uncertainty surrounding global energy markets. Analysts expect the RBA may pause future rate hikes at its next meeting to assess the impact of tighter monetary policy and recent energy price shocks on the economy.