Following the same trend as the Westpac-Melbourne Institute Index of Consumer Sentiment, the Roy Morgan Consumer Confidence Rating rose strongly in January – adding 6.5 points to 123.9.

This is the second consecutive rise after the November interest rate hike and, along with this week’s strong employment data, is likely to keep upward pressure on interest rates. However, if anyone recalls Henry’s call for pre-emptive, pre-Christmas action with regards to monetary policy, he’s been saying this for some time. Sigh!

However, a glance at the trend shows that consumer confidence always rises in January, and 2006, especially compared with 2004 and 2005, was an especially volatile year for the index. This volatility reflected the year’s three rate hikes, but also reflected consumers’ ability to shrug off the extra borrowing costs and drive consumer confidence to its previous level.

Henry knows that consumer confidence is going to rise even further as the price of a barrel of oil falls sharply, and although the low fuel cost is likely to take the edge off cost inflation, consumers are expected to simply spend the money they had been spending on their fuel bill on other consumer items, driving up ‘core inflation’.

Henry thinks some media outlets might be drawing the long bow in linking the rising consumer confidence with Australia’s historic 5-0 Ashes win, but if there is a grain of truth to it, imagine consumer confidence when we win the World Cup in the Caribbean in March/April. The Roy Morgan Consumer Confidence Rating could hit 200 for the first time!

Read more at Henry Thornton.

Peter Fray

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