Australian consumer confidence rose in October from September for the fifth consecutive month, shrugging off the Reserve Bank of Australia's interest rate rise of last week.
The Westpac-Melbourne Institute's index of consumer sentiment released rose 1.7% to 121.4 points in October from 119.3 points in September in seasonally adjusted terms.
The survey may provide the central bank with some comfort that the beginning of the tightening cycle hasn't had too much of an impact on economic confidence so far, paving the way for future moves in November and December.From a year ago, the consumer sentiment index rose 47.9% in October in seasonally adjusted terms. In trend terms, the index rose 2.0% in October compared with September, contributing to a 39.0% on-year increase.
Westpac Chief Economist Bill Evans said the increase in consumer sentiment is significant given it follows the RBA's decision to raise the cash rate a quarter of a percentage point to 3.25% last week. "However, the result should come as no surprise," Evans said.
"Evidence from the last tightening cycle, which began in May 2002, points to sentiment being resilient to rises while rates remain very low."
As such, Evans said he doesn't expect a likely follow-up 25 basis point rate hike at the RBA's Nov. 3 meeting to have a marked impact on sentiment.
However, he said higher household debt ratios now - 155% compared with 130% in 2003 - are likely to make consumers more sensitive to increases in the standard variable mortgage rate.
"It is reasonable to expect that once the Reserve Bank's overnight cash rate starts exceeding 3.5%, we will start to see sentiment responding adversely to rate hikes," he said.
Labour market resilience has also been buoying sentiment, with the surprise drop in the unemployment rate to 5.7% in September from 5.8% in August having "strengthened households' convictions that their jobs are safe."