Bill Evans, Chief Economist at Westpac, notes that the Westpac Melbourne Institute Index of Consumer Sentiment rose by 4

Bill Evans, Chief Economist at Westpac, notes that the Westpac Melbourne Institute Index of Consumer Sentiment rose by 4.2% in February to 101.3 from 97.3 in January.

Key Quotes

“The Index has now recovered all the ground it lost in January when it fell by 3.5%. The Index has now returned to a level (above 100) where optimists outnumber pessimists. This is good news in that there have only been five months over the last two years when we have had optimists in the ascendency.

While the plunge in the oil price is disturbing from a market perspective, households are now benefitting from lower petrol prices. Since the survey in January “average pump price” has fallen by 8.5% providing households with a decent boost to disposable incomes.

The Reserve Bank Board next meets on March 1. Following the recent turmoil, markets are convinced that the Reserve Bank will be cutting rates by May, if not earlier. Today’s report highlights that one of the Bank’s most significant concerns of whether international developments will weigh on domestic demand will need more time to resolve. Certainly the resilience of Consumer Sentiment, and in particular, respondents’ assessments of their own financial position are not pointing to a significant deterioration in domestic demand.

The other key issue for the Bank is whether recent momentum in the labour market can be sustained. In that regard today’s report provides a less encouraging insight with the Westpac Melbourne Institute Index of Unemployment Expectations printing a disappointing result. We are maintaining our call that rates will remain on hold over the course of 2016.”