Consumer sentiment has dropped to its lowest level in two years, the Westpac-Melbourne Institute Index revealed today.
 
It fell by 2.6 per cent to 101.2 in June, a level not seen since June 2009’s survey recorded a level of 100.1.
 
“At that time households were relieved that Australia appeared to have escaped the recessions, which had affected most of the developed world, but still fearful of the near term outlook,” says Westpac’s chief economist Bill Evans.
 
The report shows the measurement of how respondents feel about economic conditions over the next 12 months is up on the 2009 level. However, this is offset by concerns they have about their own finances.
 
“The measure of how respondents feel about their financial position compared to a year ago printed 82.4 in June 2009 compared to 75.9 in today’s survey. Equally, the outlook for finances over the next 12 months printed 113.8 in June 2009 compared to 95.5 in today’s survey.”
 
Evans believes the reason behind today’s soft results lies in factors such as interest rates, which many households believe will increase over the next 12 months despite remaining stable for the seventh successive month.
 
“The three [news] items respondents nominated as the most recalled were economic conditions, interest rates and tax. While economic conditions and interest rates are usually the most recalled items it is unusual for tax to register such interest.
 
“There have really only been three periods over the last 10 years when tax has been a significant issue for respondents – during the period of the GST introduction; last year's focus on the mining tax and the current period.
 
“The degree of negativity from respondents about taxation issues is large and broadly similar in the three periods. It appears that despite steady interest rates and falling petrol prices concerns about the introduction of a price on carbon are rattling households,” Evans says.
 
He believes there will be no window of opportunity for the Reserve Bank to raise rates until November at the earliest.
 
“The issue is whether the current soft patch in the labour market and the wave of caution now enveloping the household sector will pass as we move through 2011.”