Australia consumer confidence drops as rate hikes bite

CreditorWatch Chief Economist Ivan Colhoun said Australia's latest drop in consumer confidence points to growing pressure on households and retailers, with the most recent interest rate rise likely to add to the strain ahead of the Christmas sales period.

Consumer confidence fell 2.7% in November and remained near its weakest levels outside a recession, according to Colhoun's commentary on the latest survey results. He said it was notable that confidence did not fall further after the Reserve Bank of Australia raised interest rates at its November meeting.

The timing of the survey may help explain that result. It ran from November 2 to 6, meaning a significant share of responses may have been recorded before the central bank's decision was announced. Colhoun said perhaps 40% of the survey took place before the rate rise.

The sharpest declines were in views on the economy over the coming year and among mortgage holders. Expectations for the economy over the next 12 months fell 10% month on month, while confidence among mortgagees dropped 11.6%, Colhoun said.

He said the broad weakness in sentiment continued to centre on household budgets, with family finances remaining close to the lowest levels usually seen outside recessionary periods.

That pressure reflects several years of higher living costs, not just the current inflation rate. Consumer prices in Australia have risen by nearly 26% over the past six years, Colhoun said, a pace of increase that previously took almost 11 years.

Lower oil prices have offered some relief, but the cumulative rise in prices is still weighing on households, businesses and government, he said. Retailers are likely to feel that pressure as consumers head into a key trading period with less room in their budgets.

"The surprise was perhaps that consumer confidence did not fall further this month after the RBA Board again raised interest rates," Colhoun said.

He said the labour market signal from the survey also warranted attention. The unemployment expectations index rose 1.6% in November and was 11% higher than a year earlier, which he said had historically provided a useful lead signal for shifts in unemployment.

"I do wonder whether concerns about future AI-related job losses rather than widespread current job losses may be reducing the normal value of this signal," Colhoun said.

Rate outlook

Colhoun said the Reserve Bank was likely to spend the next three to six months assessing the economy and labour market before deciding whether more policy tightening was needed. He noted that the central bank had now delivered two rate rises in the past six weeks, on top of three earlier increases in the first half of 2026.

He also said the Reserve Bank does not place much weight on consumer confidence data and has recently observed that the series has not been closely correlated with spending. Even so, continued weakness in household sentiment adds to signs that growth may slow.

Another business survey released recently suggested softer economic activity may lie ahead. Colhoun said that if those results are borne out, Australian interest rates may already have peaked.

The immediate concern for many businesses is the retail sector, which relies heavily on end-of-year consumer demand. Households facing higher mortgage repayments and elevated living costs may pull back on discretionary purchases during the Christmas shopping period.

"The two further interest rate increases recently will likely increase pressure on consumers and therefore also on retail businesses heading into the important Christmas sales period," Colhoun said.