The Westpac–Melbourne Institute Consumer Sentiment Index fell by one per cent in April from 117.3 in March to 116.1 in April.
Westpac's chief economist, Bill Evans, said it was a surprisingly strong result.
“Despite a second consecutive increase in the standard variable mortgage rate of 0.25 per cent in April the index has hardly moved. In fact, it follows a 0.2 per cent increase in March in response to the 0.25 per cent increase in the standard variable mortgage rate which was announced earlier that month.
“Over the two-month period the average standard variable mortgage rate has been raised from 6.65 per cent to 7.15 per cent and the index has fallen by only 0.8 per cent from 117.0 to 116.1. That compares with the November/December period in 2003 when the standard variable mortgage rate rose from 6.55 per cent to 7.05 per cent and the index fell 5.3 per cent from 117.4 to 111.2.
“While this suggests that mortgage rates may be a little higher today than in December 2003, RBA estimates indicate that mortgage discounts may be around 0.2 per cent bigger today than back in 2004 indicating that effective mortgage rates are around 0.1 per cent lower than in that previous period.
“In the last tightening cycle the big responses to rate hikes started once the standard variable mortgage rate exceeded 7.3 per cent. When the standard variable mortgage rate was increased from 7.05 per cent to 7.3 per cent following the RBA's 25 bp rate hike in March 2005 the index fell by 15.5 per cent from 123.1 to 104. Following the subsequent seven rate hikes between May 2006 and March 2008 the average fall in the index in response to a rate hike was 8.5 per cent. This savage response from consumers to rising rates was one of the reasons why the RBA's rate hike cycle was drawn out over nearly six years,” said Evans.
There were mixed movements in the components of the index. Family finances compared to a year ago fell by 0.6 per cent; expected family finances over the next 12 months fell by eight per cent. That is the sharpest fall in that component for nearly two years. It may indicate that consumers are at least concerned about rates from their personal perspective but see relief in the general outlook for the economy. Expected economic conditions over the next 12 months rose by 1.3 per cent, while expected economic conditions over the next five years rose by 0.7 per cent. Whether now is a good time to buy a major household item increased by 1.5 per cent.