The Westpac–Melbourne Institute Consumer Sentiment Index fell by 2.6 per cent in February from 120.1 in January to 117 in February.
Westpac’s chief economist, Bill Evans, found the fall in the index a little surprising.
“Households received a very welcome surprise in February when, despite strong media and market speculation to the contrary the Reserve Bank (RBA) decided not to raise the overnight cash rate,” he said.
“However, the level of the index remains very high. It is still 2.9 per cent above the December 2009 reading, 3.2 per cent above the reading of six months ago and 15.2 per cent above its long-term average.
While recognising that rates were held steady in February, Evans said households do not expect rates to have peaked.
“A special question in the February survey on consumers’ expectations for mortgage interest rates supports this view. An overwhelming 93 per cent of consumers expect rates to rise over the next 12 months with over 60 per cent expecting an increase of more than one per cent,” he said.
“This is consistent with the reasonable commentary on the RBA’s rate decision, which emphasised that rates were still likely to rise further over the course of the year.”
Respondents’ views on their own finances was the hardest hit category in February with family finances compared to a year ago falling by 5.4 per cent, while the 12 month outlook for finances deteriorated by 4.6 per cent.
Expectations for economic conditions over the next 12 months fell by 0.8 per cent and the five-year outlook for economic conditions improved by 1.6 per cent. Responses to whether now is a good time to buy a major household item fell by 4.1 per cent to remain above the long-term average of 127.8 (though only by a modest 2.6 per cent).
Evans said the RBA was expected to hold off on a rate rise again when it meets next on 2 March.