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Consumer confidence bounce could trigger further rates rise


The World Today - Wednesday, 13 September , 2006  12:42:00

Reporter: Brigid Glanville

ELEANOR HALL: The falling price of petrol has seen consumer confidence rebound. The September survey released today is up 12 per cent.

The bounce back in Australians' willingness to spend has economists asking whether the Reserve Bank is even more likely to increase rates in the coming months.

The extent of the consumer bounce surprised most analysts.

Business reporter Brigid Glanville joins us now with the details.

So, Brigid, what is this survey telling us about our spending patterns?

BRIGID GLANVILLE: Well, one of the main things it's saying is that petrol prices definitely have a huge effect on consumer confidence, and petrol prices were the main reason for the large jump in confidence.

In the past two weeks we've seen the oil price fall from around $US76 a barrel to 67, and that's caused petrol prices to go from as high as $1.40 a litre in some capital cities to $1.28.

Now, economists say this is surprising, because petrol isn't the largest part of a household spending, your mortgage is, but this time around the survey asked a specific question: what was more worrying to consumers, was it petrol prices or interest rates? And more than half the respondents were more worried about the rise in petrol prices than the rise in interest rates.

So they're sort of saying interest rates have gone down, that's good, our consumer confidence is back up, we might start spending a bit more.

ELEANOR HALL: Is there any information there about where we're spending?

BRIGID GLANVILLE: They don't go specifically into those details in the survey, just in terms of, you know, what will you, is it likely that you'll start spending more on goods coming up in the next few months.

ELEANOR HALL: A jump in the consumer survey of course conflicts with the news we heard yesterday about business confidence. What are these figures likely to mean for the possibility of another interest rate rise? How's the Reserve Bank board going to view them?

BRIGID GLANVILLE: Well, this consumer confidence survey, as we just mentioned, is up 12 per cent. The last one was down 16 per cent, and that was a huge jump, so that really said to the RBA, ooh, be careful, consumers don't like this.

So it means in the short-term, possibly around October, that large fall in the consumer confidence survey will still be in the RBA's mind, so they're not going to likely, economists say, put it up. Maybe November, if the confidence is still rising, they might consider it then.

And this is what Justin Smirk, the senior economist at Westpac, had to say.

JUSTIN SMIRK: When the consumer sentiment collapsed so dramatically, it basically took another rate hike off the table.

This (inaudible) recovery does bring back the possibility of a further rate rise. They will be looking at more data. You still would be wanting to see the firmness in sort of the lending numbers still coming through, you'd want to be seeing retail sales numbers remain firm. And of course the inflation numbers, that's where the big risks lie in terms of between now and the next board meeting, the next meeting in November, where we think they could raise rates.

ELEANOR HALL: And that's Justin Smirk from Westpac speaking to our business reporter Brigid Glanville.