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Consumers slightly more confident in May, survey shows

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The generous cut to interest rates by the central bank has failed to re-ignite consumer confidence.

The latest Westpac/Melbourne Institute Consumer Sentiment Index, released on Wednesday, ticked up by only 0.8 per cent to 95.3 index points in May.

Westpac chief economist Bill Evans said he had hoped for a larger increase in consumer confidence after the Reserve Bank of Australia (RBA) cut the cash rate by a surprise 50 basis points to 3.75 per cent on May 1.

But it appeared consumer confidence had been dented by the big four banks and other smaller lenders not passing on the official interest rate cut in full, he said.

A strong employment report for May should also have given confidence a boost.

“There might have been a degree of disappointment amongst households that the standard variable mortgage rate was reduced by only an average of 0.37 per cent,” Mr Evans said.

“Secondly, increasingly disturbing news around Europe and specifically Greece is likely to have unnerved households.”

Mr Evans said it was particularly striking that confidence was 2.0 per cent below its position in October 2011, when the cash rate was a full 1.0 per cent higher.

The federal budget could also have driven confidence down, he said, with only 9.9 per cent of survey respondents expecting their family finances to benefit from it.

More than a third expected family finances to worsen because of the budget, despite the government’s $5 billion cash hand-outs and tax breaks.

Australian National Retailers Association chief executive Margy Osmond was also surprised consumers weren’t feeling more positive.

“With a 50 basis point drop in the cash rate and significant family payments in the federal budget retailers expected confidence to rally,” she said.

“And while an uptick is better than a decrease, it’s still a concern that people feel so under pressure with their finances.”

Even so, the component of the survey comparing family finances to their circumstances a year ago was up 17.0 per cent from the April reading.

The index tracking views on economic conditions in the next five years also rose 1.8 per cent, with a 1.3 per cent increase in the index focusing on economic conditions in the next year.