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Australia's Consumer Sentiment Rises in May but Remains Subdued Amid Cost Pressures: Westpac-Melbourne Institute

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Australia's consumer confidence edged higher in May, but sentiment remained deeply pessimistic as interest rate hikes and cost-of-living pressures continued to outweigh modest budget-driven improvements, according to a survey by Westpac and the Melbourne Institute published Tuesday.

The Westpac-Melbourne Institute Consumer Sentiment Index rose 3.5% to 83 in May from 80.1 in April.

Consumer sentiment remains deeply pessimistic despite a slight improvement, as lower fuel prices from a temporary tax cut have been offset by the Reserve Bank of Australia's (RBA) third consecutive interest rate hike, said Matthew Hassan, head of Australian macro-forecasting at Westpac.

Sentiment improved slightly after the Federal Budget but remained negative overall, with 34% expecting to be worse off compared with 15% better off, a 21% gap that is worse than last year's 10%, despite limited expected personal benefit.

The budget shows clear intergenerational differences, with baby boomers and Generation X significantly more pessimistic and expecting to be worse off, while Millennials are only mildly negative, and Generation Z is slightly positive.

The biggest rises in May were in assessments of family finances, with both the "finances vs a year ago" and "next 12 months" sub-indexes increasing to 72.8 and 93, respectively, although both remained below March levels.

Meanwhile, the "economy over the next 12 months" and "next 5 years" sub-indexes fell to 74.2 and 89.3, respectively, marking the weakest combined reading since November 2022.

Consumers' job-loss fears eased in May as the Westpac-Melbourne Institute Unemployment Expectations Index fell 5.2% to 140, still above its long-run average of 129, indicating lingering caution about job prospects.

Housing sentiment has fallen sharply amid price declines, rising rate expectations, and new budget tax changes, with buyer confidence hitting multi-year lows despite a slight post-budget improvement and weak sentiment among older buyers.

The RBA, after raising rates in its previous three meetings, is likely to pause at its next meeting to assess the impact of the energy price shock and tighter monetary policy, though elevated inflation risks mean further rate hikes are still expected in subsequent meetings.

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