Consumer confidence dropped by a higher-than-expected amount in March, falling 2.4% due to concerns over the Federal Budget, new taxes and rising petrol prices, Westpac said this morning.
The Westpac-Melbourne Institute of Consumer Confidence fell from 106.6 in February to 104.1 in March.
Chief economist Bill Evans wrote the drop is mainly due to the national discussion of a flood levy and carbon tax – 42% of respondents said they recalled news about the budget and taxation, compared with normal readings of 20%.
Concern over interest rates was not as significant, with only 21.6% of respondents able to recall any news about rates.
“While there is no specific evidence we expect that the key negative for households which is highlighted by the prominence of Budget/Taxation in their assessments relates to the Government’s commitment to introducing a price on carbon by July next year.”
Households were generally pessimistic about their finances over the next 12 months – Evans says the last time optimists outnumbered pessimists for this index was back in 2008.
However, the general economic outlook is quite good. The index tracking respondents’ expectations for the economy improved by 5.7%, although the five-year outlook dropped by 2.9%.
Evans says the RBA will be most concerned about the mining boom and terms of trade when it next meets on April 5.
“Evidence from this report that Consumer Sentiment is at its lowest level since June 2010 and households are particularly concerned about their own finances enforces the theme of a cautious consumer and provides the Bank with ample scope to observe developments.”
“There is little chance of a rate move in April with the next increase not likely to occur before the September quarter.”
RBA says commodity prices to remain high
Commodity prices are set to remain high for the foreseeable future, Reserve Bank of Australia assistant governor Philip Lowe has said in a speech.
Lowe said terms of trade are about 90% above the average for the 1990s, and that it is uncertain how long this will last.
“However, given that it is being driven by structural changes in the global economy, it is likely that commodity prices will be above their average over recent decades for some time yet,” he said. “If this is the case, Australia will do very well.”
“The most important contribution the Reserve Bank can make to this task is to keep inflation low and stable,” he said.
Shares lower despite strong Wall Street performance
The Australian sharemarket has opened lower this morning despite a strong result on Wall Street, where good financial reports from Bank of America sent shares up over 120 points.
The benchmark S&P/ASX200 index was down 20 points or 0.42% to 4787.9 at 12.10 AEST, while the Australian dollar has also taken a hit, holding just above parity.
AMP shares rose 1.48% to $5.49, while Westpac rose 0.04% to $23.50. NAB rose 0.08% to $25.32 as ANZ rose 0.04% to $23.78.
OPEC considers boosting oil output
OPEC is currently considering boosting oil supplies, the Kuwait oil minister has said.
“We are in consultations about a potential output increase but have not yet decided,” sheikh Ahmad al-Abdullah Al-Sabah told reporters late yesterday.
Turmoil in Libya has halted oil production, causing prices to rise worldwide. However, Saudi oil minister Ali al-Naimi has told the state news agency SPA there is plenty of resources in reserve.
“The kingdom has 3.5 million barrels a day of spare capacity which could help compensate for any shortages,” he said.
Wall Street stocks rise as Bank of America lifts profit forecast
Bank of America has increased its profit forecast to $US40 billion in the long-term, sending its shares up 4.4% to $US14.64.
The figure was unexpected, and sent the overall market up despite negative sentiment over halted oil production in the Middle East.
The Dow Jones industrial average gained 124.58 points, or 1.08%, to 12,214.61.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
