Consumer inflation expectations hit 6½-year high

Consumer confidence; CBA card spending

The weekly ANZ-Roy Morgan consumer confidence rating fell by 0.2 per cent to 106.8. Consumer inflation expectations over the next 2 years hit a 6½-year high of 5 per cent last week.

Commonwealth Bank (CBA) national credit and debit card spending is 18.6 per cent higher for the week ending October 22, 2021 when compared to the corresponding week in 2019.

Consumer sentiment – Week ended October 24

• The weekly ANZ-Roy Morgan consumer confidence rating fell by 0.2 per cent to 106.8 (long-run average since 1990 is 112.5). Three out of the five major sub-components fell last week.

• Confidence in Melbourne continued to increase (up 1.2 per cent) following the end of the city’s sixth Covid-19 lockdown, with the state reaching a 70 per cent fully vaccinated target. And sentiment lifted by 1.5 per cent across Victoria as government restrictions were eased.

• Consumer sentiment was up 0.7 per cent in Queensland after the government released a roadmap to easing virus restrictions. And confidence surged 10.4 per cent in South Australia after the state’s Covid-19 first dose vaccination rate hit 80 per cent, ahead of a planned reopening of state borders to NSW and Victoria in December.

• Elsewhere, consumer confidence dropped 5.9 per cent in Western Australia last week as vaccination rates in the relatively “Covid-free” state lagged the rest of Australia, delaying the reopening of state borders.

• Following the reopening of the NSW, Victorian and ACT economies, the closely-followed question of whether it is a good ‘time to buy a major household item’ rose by a further 2.4 per cent to a 15-week high of 109.7 points last week. The upturn is consistent with the pick-up in CBA card spending data in the past fortnight, as detailed below.

Notably, consumer concerns about the rising cost of living resurfaced, with the ANZ-Roy Morgan measure of consumer inflation expectations over the next two years hitting a 6½-year high of 5 per cent last week. Record petrol prices, higher food prices, elevated utilities bills and annual insurance price hikes are worrying households.

• Rising costs of inputs and production, due to supply chain disruptions and labour shortages, could eventually lead businesses to pass-on these higher costs to consumers through price hikes. As evidenced elsewhere in the world, rising consumer inflation expectations could potentially dampen confidence with households reluctant to spend in the near-term, delaying ‘big-ticket’ purchases.

• The September quarter Consumer Price Index (CPI) is released tomorrow.

CBA card spending data – Week ended October 22

• With NSW, Victoria and the ACT exiting lockdowns in the past fortnight, CBA credit and debit card spending growth continued to recover last week as higher Covid-19 vaccination rates enabled greater mobility. Spending in-store and on services are recovering as government restrictions are progressively wound-back with full vaccination rates nationally approaching 75 per cent of Australia’s eligible population.

• CBA economists said, “Compared with the corresponding week in 2019 (what we consider to be a ‘normal’ year), [national credit and debit card] spending in the week was 18.6 per cent higher. That is a 2½ percentage point increase from the 16 per cent pace the previous week.”

• For Victoria: CBA economists said, “Spending in Victoria rose by 1.3 percentage points [last week] to 6.8 per cent above 2019 levels. This only includes one day of reopening spending, but spending in Victoria had already been on an upward trend prior to the lifting of lockdown restrictions.”

• For NSW: CBA economists said, “In NSW, spending growth accelerated to 23.7 per cent [last week] above 2019 levels, up 6.7 percentage points from the pace last week. That puts spending growth above the pre‑lockdown pace.”

• For the ACT: CBA economists said, “The spending recovery in ACT has also progressed, with the pace of spending growth rising to 7.9 per cent above 2019 levels from the 1.3 per cent pace the previous week.”

• For Tasmania: CBA economists said, “The 3-day snap lockdown in parts of Tasmania saw spending dip sharply [last week].”

• For other states and territories: CBA economists said, “Spending growth has remained robust in Queensland and South Australia but has edged a little lower in Western Australia, albeit from a high base.”

Published by Ryan Felsman, Senior Economist, CommSec