Consumer confidence lifts (just) amid hopes for better times next year

More consumers expect to be better off this time next year. But for now, they remain wary about whether it is a good time to buy a major household item.

Consumers felt slightly more upbeat in August, though overall confidence remains low, according to the latest ANZ Roy Morgan Consumer Confidence Index.

“The lift in consumer confidence was driven by the question of whether it’s a good time to buy a major household item, which rose a healthy 8 points”, ANZ chief economist Sharon Zollner said.

The survey of about 1000 consumers found perceptions of current personal financial situations lifted 1 point to a net -24 per cent, suggesting the current level of confidence is still very low.

The net figure is derived from the difference between those who offer favourable responses minus those who offer unfavourable ones.

But a net 13 per cent expected to be better off this time next year, up by 2 points.

Overall perceptions regarding the economic outlook in 12 months’ time eased 2 points to -34 per cent. The 5-year-ahead measure also fell 2 points to +1 per cent.

Two-year-ahead inflation expectations eased very slightly from 4.7 per cent to 4.6 per cent.

“Inflation expectations remain stuck at levels inconsistent with the inflation target, but are at least pointing in the right direction,” Zollner said.

House price inflation expectations lifted again, from 1.9 per cent to 2.4 per cent.

“How confident households in New Zealand are feeling still currently depends to some extent on whether they have debt,” Zollner said.

“Those paying down mortgages were much less negative in August than in July regarding both their current financial situation and whether it was a good time to buy a major household item.

“That’s not the Reserve Bank’s plan. And it is a surprising result, given fixed mortgage rates continued to edge higher last month. It’s interesting that it isn’t one-way traffic as mortgage holders continue to roll onto higher rates.”

A wide gap persisted between the current and forward-looking questions in the survey, she said.

This was typical of periods during which the economy was weak.

“When times are tough, the bar is lower to expect an improvement. But in the current situation, it may also reflect an expectation that rates will be cut next year.

“Consumers get the forecasting prize for picking the surge in CPI inflation well before anyone else did, so it’s worth paying attention to what they think on the way down as well.”

Consumer expectations also mattered for wages, though to what extent depended on labour market tightness, she said.

“Overall, consumer inflation expectations are consistent with our belief that, while a fall in CPI inflation to 4-5 per cent is pretty much baked in at this point, ongoing progress from there remains very much a matter of conjecture and debate.”

Consumers remained wary, with overall confidence stuck in a moribund 10-point band for the past 18 months.

Within the detail, respondents had become less pessimistic about the future but, in the here and now, they reported ongoing wariness about whether it was a good time to buy a major household item.

“Accordingly, any rebound as inflation falls is likely to overstate the tailwinds for retail spending,” Zollner said.

“At the end of the day, New Zealand has been living beyond its means for some time, as demonstrated by an enormous current account deficit, and a period of national penance is inevitable.”

Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.