Australian consumer sentiment soured in January as rising petrol prices and borrowing costs combined with sliding equities and global gloom to take the gloss off an otherwise robust economy, a survey showed on Wednesday.
The Westpac-Melbourne Institute consumer sentiment index slid 8.3 percent to 103.1 in January, more than wiping out a 1.8 percent rise in December. That left the index 5.9 percent lower than in January last year, the first annual drop since late 2006.
The more sober mood should suit the Reserve Bank of Australia (RBA), which has repeatedly warned that domestic demand was running too hot and threatening to stoke inflation.
"It seems consumers are finally looking around and realizing all is not well," said Stephen Roberts, research director at Lehman Brothers Australia. "That will make the RBA more cautious about hiking again next month, though it remains a very close call."
The central bank holds its first policy meeting of the year on Feb. 5 and the market is split down the middle on whether it will raise its 6.75 percent cash rate, after two hikes last year.
One argument against tightening was that commercial banks had already done so. Faced with increased borrowing costs from the global credit squeeze, Australia's major banks have broken with a decade of tradition by lifting their variable mortgage rates independent of an RBA move.
"Today's data suggest that the defacto tightening by the market as a result of tighter credit conditions is clearly having an impact," said Su-Lin Ong, a senior economist at RBC Capital Markets. "The more difficult question is whether it is enough."
Other figures out on Wednesday showed demand for housing loans had still been robust back in November, before the latest rise in borrowing costs.
Approvals for home loans rose 4.0 percent in November, well above market forecasts of a 1.0 percent increase. Still, much of the gain was in refinancing as home-owners switched to fixed-rate mortgages, rather than for purchases.
Consumers have also had to swallow a 10 percent rise in petrol prices in the past couple of months, and have seen the once high-lying share market turn ugly as investors fret about the risk of a U.S. recession.
After rising almost 12 percent in 2007, and attracting many more mum and dad investors, Australia's main S&P/ASX 200 Index had already fallen nearly 9 percent so far this year.
"Consumers have been battered by a series of unsettling news," said Westpac chief economist Bill Evans. The result was a marked weakening in consumers' optimism over the domestic
The index measuring the outlook for economic conditions over the next 12 months dived 20.4 percent in January, while the index for the next five years slid 10.4 percent.
Opinions on the state of family finances over the next 12 months fell by 3.1 percent and the measure of whether it was a good time to buy a major household item dropped 5.4 percent.
Yet the index measuring current family finances eased by only 0.8 percent, suggesting consumers were not actually suffering as yet.