Australian consumers’ pessimism deepens

Australia’s consumers have turned deeply pessimistic, reflecting how quickly an energy shock can weigh on confidence. The gloom has spread even as other indicators suggest a steady economy, from a tight labor market to a GDP-boosting wave of investment in data centers.

Surveys show Australians expect inflation to be running at 6%-plus in two years’ time. While an initial spike in gasoline prices has faded, confidence remains as bad as the worst days of the pandemic. (It’s notable that Australians have been more pessimistic than optimistic since early 2022, even though the economy has avoided recession.)

Inflation had been trending higher even before the Middle East war, prompting the Reserve Bank of Australia to raise rates repeatedly. Despite these trends, the RBA might be ready to cut rates in the medium term – demonstrating how monetary and inflation cycles in developed markets are out of sync.

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