Consumer Sentiment Improves, but Remains Weak
RBA Holds Rates, Tax Cuts Provide Relief
Consumers breathed a short sigh of relief after the Reserve Bank of Australia (RBA) left interest rates on hold at its August Board meeting, but sentiment remains weak.
Index Rises, Expectations Exceeded
The Westpac-Melbourne Institute consumer sentiment index rose 28 points in August, to 85 from 82.7 in July. This was higher than economists' expectations for an increase of 0.5 points.
The index measures households' expectations for economic conditions over the next 12 months and their current financial situation. The improvement was driven by gains in the outlook for the economy and personal finances.
Tax Cuts Boost Confidence
The rise in consumer confidence follows the introduction of tax cuts for low- and middle-income earners on July 1. These cuts put more money in people's pockets, which helped to boost sentiment.
Despite the improvement, consumer sentiment remains well below the long-term average of 100. Households are still cautious about spending due to concerns about the global economy, rising living costs, and job security.
The RBA has indicated that it is unlikely to raise interest rates in the near term, which should provide some further support to consumer spending.
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