Australian research firm Roy Morgan has reported a slight dip in weekly ‘Inflation Expectations’ to 5.2% in mid-August, down for two consecutive weeks since late July, and the first consecutive weekly drop in the measure since late April.
The latest news comes as Australians expected inflation of 5.6% annually over the next two years in July 2023, matching expectations four months ago in March (5.6%), but down 0.3 points from a year ago.
According to Roy Morgan, the softening in ‘Inflation Expectations’ in recent weeks suggest the RBA’s decision to leave interest rates unchanged during their two meetings in July and August may be the correct decision. However, the research firm claimed there are still significant pressures in the economy - including a recent jump in petrol prices.
Roy Morgan CEO Michele Levine said falling Australian Dollar and rising petrol and energy prices may prompt a renewed bout of inflationary pressures.
“Although the drop in Inflation Expectations is good news, there are signs that it may prove to be short-lived,” Levine said. “In recent days the Australian Dollar has fallen to under 65 US cents for the first time in two months and a further drop will take the Australian currency to its lowest since November 2022 – when the current ‘bout’ of inflation peaked.”
Levine said the early impact of the falling Australian Dollar is being felt at the pump, with average petrol prices hitting $1.97 a litre this week - “the highest they’ve been for nine months since mid-November 2022.”
“Petrol prices are one of the most visible signs of inflation and if they continue rising in the days and weeks ahead and end up back over the $2 per litre mark (last reached over a year ago in July 2022) – this will increase the general inflationary pressures in the economy.
“If these inflationary pressures in the economy continue to grow, there will be renewed pressure on the RBA to increase interest rates again despite pausing and leaving interest rates unchanged at their last two meetings in July and August.”
The next RBA meeting on interest rates is set for three weeks’ time and will be the current Governor Philip Lowe’s final meeting in the job.
“Although all the current signs are that the RBA is set to leave interest rates unchanged at next month’s meeting, if the Australian Dollar continues to [drop] and forces the prices of imports – such as petrol – to keep increasing, there may be one more interest rate rise to come for Governor Phil Lowe before he’s replaced by Michele Bullock.”
Consumer confidence swings back
Meanwhile, ANZ-Roy Morgan Consumer Confidence increased 3.2pts to 78.2 this week - a swing back from a dip recorded a week ago.
Despite the lift, the index has now spent an all-time record 24 straight weeks below the mark of 80.
Consumer confidence is now 6.2pts below the same week a year ago, August 8-14, 2022 (84.2) and in line with the 2023 weekly average of 78.2.
Driving the index up this week were increases in sentiment regarding personal finances, both compared to a year ago and expectations over the next year, ANZ and Roy Morgan noted. This reversed the trend of a week ago.
Now 21% (up 4ppts) of Australians say their families are ‘better off’ financially than this time last year compared to 53% (down 4ppts) that say their families are ‘worse off’.
Looking forward, 31% (up 3ppts) expect their family to be ‘better off’ financially this time next year while 34% (down 4ppts) expect to be ‘worse off’.
Only 7% (up 1ppt) of Australians expect ‘good times’ for the Australian economy over the next twelve months compared to over a third (36% - down 2ppts) that expect ‘bad times’.
Over the next five years, 11% (unchanged) of Australians expect ‘good times’ for the economy compared to 19% (unchanged) expecting ‘bad times’.
Sentiment regarding buying intentions is mixed this week, ANZ and Roy Morgan noted, with 20% (up 1ppt) of Australians now saying it is a ‘good time to buy’ major household items while 57% (up 3ppts) say now is a ‘bad time to buy’.
ANZ senior economist Adelaide Timbrell said the lift in consumer confidence this week nearly offsetted the fall from the week before.
“While still very weak, the four-week moving average for consumer confidence is at its highest since May,” Timbrell said.
“The four-week average of consumer confidence is rising for all housing cohorts, perhaps representing some green shoots in confidence as the cash rate stabilises, the labour market stays resilient and inflation falls.”