CANBERRA, AAP – The mood among Australians improved further in the past week as falling Omicron cases appeared to outweigh rising inflation pressures, which have sparked speculation of an official rate hike this year.

The ANZ-Roy Morgan consumer confidence index rose 1.7 per cent to 101.8 in the past week, continuing its recovery from a slump to 97.9 in mid-January when infections were at their peak.

ANZ head of Australian economics David Plank said the rise in confidence was mainly driven by a 6.2 per cent jump in NSW after three weeks of decline.

But he said a more surprising shift was a 0.3 percentage point fall in inflation expectations to 4.7 per cent, despite annual inflation unexpectedly growing to 3.5 per cent and petrol prices rising seven per cent in January.

Meanwhile, manufacturing has been further hit by supply chain disruptions and staff shortages over the summer months, cutting short the improvement in the industry after last year’s COVID-19 lockdowns.

 

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Ai Group chief executive Innes Willox said cost pressures are also being felt across the sector, with input prices continuing to rise and selling prices only partially recovering these outlays.

The Australian Industry Group performance of manufacturing index dropped 6.4 points over December and January to 48.4, indicating a modest contraction in the sector with the index under 50 points.

“The new orders index fell steeply pointing to a reduction of confidence among businesses dealing with new implications of the COVID-19 pandemic,” Mr Willox said.

The impact of the Omicron variant on the economy will be taken into account when the Reserve Bank board holds its first meeting of the year on Tuesday.

Rising inflation and a sharp drop in the unemployment rate is expected to see the RBA rethinking its guidance on the interest rate outlook, while economists predict it will end its bond buying program this month.

Financial markets are pricing in the risk of a rise in the cash rate from a record low 0.1 per cent by mid-year, while economists appear to be gravitating to the August board meeting.

Until late last year, the RBA was indicating that a rise in the cash rate would not occur until 2024, before shifting its stance to possibly 2023.

RBA governor Philip Lowe had repeatedly ruled out the likelihood of a move in 2022.

Also on Tuesday, the Australian Bureau of Statistics’ figures are expected to show demand for home loans slowed in December, with economists’ forecasts pointing to a 0.8 per cent decline.

Retail spending for December is also expected to have declined two per cent following two extremely strong months as COVID-19 lockdowns were eased.