The latest Westpac–Melbourne Institute Consumer Sentiment Survey presents a warning on the outlook for Australian households, with confidence falling sharply following the RBA’s latest rate increase. Consumer sentiment declined 4.7% month-on-month to 80.4 in October, its lowest level since April, placing it amongst the weakest sustained periods of consumer confidence since the early 1990s recession.
The deterioration was overwhelmingly concentrated among respondents surveyed after the RBA lifted the cash rate to 4.6%, a 15-year high. Sentiment among this cohort fell almost 20% to 67.2, the weakest reading this century. The substantial drop highlights how acutely households are responding to the combination of higher borrowing costs and persistent cost-of-living pressures.
The survey suggests that the current weakness is being driven more by household financial pressure than recessionary concerns. Perceptions of family finances fell 8% over the past year to 66.9, while expectations for finances over the next 12 months declined 6.4% to 88.4, placing the latter in the bottom 10% of historical observations. Elevated fuel prices are adding to the pressure, while more than 80% of consumers expect mortgage rates to rise further.
The key macroeconomic question is whether weak sentiment translates into a meaningful slowdown in household consumption. Consumer confidence is a soft leading indicator and does not necessarily translate directly into activity. Nevertheless, recent moderation in household spending, together with rising unemployment, suggests that the weakening in confidence is increasingly consistent with a slowing consumer backdrop.
This creates a difficult policy trade-off for the RBA. The Bank has been seeking a clearer slowdown in economic activity and demand to help bring inflation under control, and has indicated that weaker demand is an important part of the transmission mechanism required to tame inflation. The latest sentiment data suggest that monetary policy is increasingly weighing on households, although the key question is whether this translates into the broader moderation in demand that the RBA is seeking without an excessive deterioration in employment or economic activity.
As consumer sentiment softens, the Aura Private Credit team remain cognisant of the potential flow-through to business activity and, in turn, business debt serviceability. The current environment reinforces our focus on disciplined credit selection and downside protection. Our strategy of secured lending against real assets and receivables provides an additional layer of collateral and protection for investors should economic conditions and borrower cash flows deteriorate.
Source: Westpac IQ, Westpac-IM Consumer Sentiment Bulletin, October 2026.
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