Cost of Living Still Hurts Aussies Despite Falling Inflation

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Despite some of the best inflation figures we’ve seen in years and an interest rate cut on the horizon, Aussies are still feeling pretty glum about the economy.

Westpac’s latest consumer confidence index, released yesterday, came in at 92. That’s a small improvement over last month, but still firmly in the “negative territory” (anything under 100 means pessimism outweighs optimism). In fact, the index has been stuck below 100 for more than three years.

AMP economist My Bui says confidence had been trending upwards in 2024 thanks to a strong jobs market and cooling inflation, but lately that momentum has hit a wall.

“Sentiment’s now back where it was at the start of the year,” she said.

So what’s going on?

Last week’s ABS data revealed a big reason: living costs are rising faster than inflation. While core inflation dropped to 2.9% and the headline CPI hit 2.4% in the March quarter — both great signs — the actual cost of living for many households rose by up to 3.5% over the last year.

In simple terms: even though inflation’s down, life still feels expensive.

Households are being hit hardest by higher mortgage repayments, soaring insurance premiums, rising food prices, and energy bills. Only self-funded retirees have seen their living costs stay roughly in line with inflation.

ABS acting head of prices, Neel Tikaram, explained that the ongoing pain for mortgage holders is partly because more people are now rolling off their low fixed-rate loans into much higher variable rates.

There is a light at the end of the tunnel, though. The RBA’s February rate cut should start flowing through to household budgets in the June quarter, and another rate cut is widely expected next week.

In fact, some market watchers are betting on a rare “double cut”, which would drop the official cash rate from 4.10% down to 3.60%.

Bui says the consumer confidence numbers only strengthen the case for more cuts.

“Confidence — both from consumers and businesses — is still fragile,” she said. “Add that to the risk of a global trade slowdown, and it’s clear the RBA needs to keep easing.”

Her forecast? Two more cuts — one this month, and another in August.

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