Insight: If you’ve been keeping up with economic news lately, you might have observed a scarcity of upbeat headlines.

Despite this, Australia remains a robust performer on the global stage. Unlike many nations, it has avoided any post-COVID economic contractions, sidestepped the harshest impacts of Donald Trump’s tariffs, and continues to boast historically low unemployment rates. However, there are emerging indications that the seemingly subsiding cost-of-living crisis may still pose challenges ahead.

In an unexpected twist, a recent survey has found that consumers are more optimistic about the economy now than at any other time in the past seven years, excluding the unpredictable pandemic period.

The newly released Westpac-Melbourne Institute Consumer Sentiment Index shows a remarkable increase of 12.8 percent, reaching 103.8.

This marks the first occasion since early 2022 that the index has entered a positive outlook territory, surpassing the 100 mark.

“This is an extraordinary and somewhat surprising result,” Westpac head of Australian macro-forecasting Matthew Hassan said.

“Sentiment overall is still only marginally positive rather than strongly optimistic. 

“However, the move draws a clearer line under what had been an extended period of consumer pessimism when disposable incomes were being hit hard by a combination of high inflation, high interest rates and rising tax payments…

“The real surprise, though, is how much these positives have outweighed renewed concerns about inflation and the outlook for interest rates.”

In a sign those worries about the cash rate haven’t completely evaporated, sentiment dropped slightly among households with a mortgage despite the overall rise.

It could also paint a promising picture for retailers ahead of the Christmas period – while about a third of consumers are planning to spend less this high season than a year before, 15 per cent say they’ll spend more.

“While the mix falls short of that seen during the post-COVID reopening boom in 2021, it’s the ‘least restrained’ spending intentions we have recorded outside of that year since 2016,” Hassan wrote.

However, not everyone is convinced that the uptick is much more than a volatile outlier in the survey results.

“This result is a huge surprise, given the RBA’s message last week of no further near-term interest rate relief,” CreditorWatch chief economist Ival Colhoun said. 

“It’s also a little hard to believe… I’m inclined to suspect survey volatility.”

If the rise is genuine though, and consumers are planning to start spending more, that could suggest recent inflation pressures are unlikely to ease anytime soon – which would only further dent the chance of another interest rate cut.

“Perhaps an explanation for the improvement is that prior negativity has lifted,” Colhoun said.

“Again, I’d like to see further confirmation next month, but at face value it’s another positive signal on the economy and unhelpful for the likelihood of further interest rate cuts being delivered any time soon.”

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