The Westpac Melbourne Institute Index of Consumer Sentiment fell by 5.1 per cent in April from 110.5 in March to 104.9 in April.
This follows results when the Index rose by 9.9 per cent over the two previous months, which indicated that the Reserve Bank’s interest rate cuts were gaining real traction with consumers.
Westpac chief economist Bill Evans said it was a surprising result and indicates the fragility of consumer confidence.
“While it was reasonable to expect the recent momentum in the Index over the last two months to have slowed in April, a 5.1 per cent fall was not expected,” he said.
“This result emphasises how fragile consumer confidence has become in the current environment. In fact, the Index is now only 1.5 per cent above its level in November 2011, following the Reserve Bank's first cut in this easing cycle and only 0.6 per cent above the print from last November.
“When rate cuts took hold in the previous two cycles the Index surged by 37 per cent (2009) and 18 per cent (2002). The recent increase of 9.9 per cent, now been marked down to 4.3 per cent, looks much less convincing.”
According to Evans the reasons behind the April fall are best assumed to be around global concerns and an associated correction in the share market.
“The disturbing news around Cyprus with associated risks around European stability may have unnerved respondents.
“There was also some media coverage locally around prospects of rising interest rates perhaps as soon as year end. The decision by the Reserve Bank to hold rates steady at its April meeting was widely expected but would not have allayed any concerns about rising interest rates.”