Weekend Economist: Injured indices

A budget-induced consumer sentiment plunge isn't unusual and a slight rebound could follow. Housing sentiment is a different story.

The Westpac Melbourne Institute Index of Consumer Sentiment fell by 6.8 per cent in May from 99.7 in April to 92.9 in May. The sharp fall in the index is clearly indicating an unfavourable response to the recent federal budget. This puts the index at its lowest level since August 2011, before the Reserve Bank began its recent rate
cut cycle. Since November 2011 rates have fallen from 4.75 per cent to 2.5 per cent and the index is now back below pre-rate-cut levels.

The fall of 6.8 per cent is comparable to the 7 per cent fall we saw in the Index in May 2013 (from 104.9 to 97.6). That sharp fall was also in response to the budget in that year and came despite the Reserve Bank cutting rates in the same month.

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