Consumer sentiment slips, Westpac data shows

Consumer sentiment has slipped despite a second cut to the cash rate 16000646 800472318 0 0 14035142 300

Despite a second month of cuts to the cash rate by the Reserve Bank of Australia, consumer sentiment across the country is falling, according to new data.

The Westpac Melbourne Institute Index of Consumer Sentiment fell to 94.7 this month, down 8.3 per cent from November's figure of 103.4.

While the drop may seem surprising at first, especially given the recent rate cut, Westpac chief economist Bill Evans said there may be more to the situation than initially meets the eye.

"The likely explanation is that respondents' concerns over the reasons behind the rate cut may overwhelm the perceived benefits of the cut itself," he said.

Evans added that when the figures are examined in a historical context, rate cuts do not always lead to an immediate improvement in consumer sentiment.

He explained: "Since 1994 we have seen 20 rate cuts including last week's. On 12 occasions the index has increased following the rate cut and on eight occasions it has fallen."

Evans pointed out that news headlines about the rising unemployment rate - particularly with the loss of 40,000 full-time jobs nation-wide - as well as the ongoing economic uncertainty in Europe have led to changing sentiment about finances.

People are more eager to pay down debt than they were back in September, he said, noting that the overall sentiment regarding family finances compared with last year dropped by 8.6 per cent.

Families who are worried about making bill payments and the risk of rising electricity prices may be buoyed by Evans' prediction that further reductions to the interest rate will be made during the Reserve Bank's next meeting in early February - but in the near-term, there are actions that can be taken to ease the financial burden on Australian households.

Using electricity more efficiently can be your family's first step toward lower bills - by reducing the amount of time you keep your air conditioner turned on or keeping your appliances switched off, rather than standby, when they are not in use, you could see a reduction in the amount you pay.

Switching to energy efficient light bulbs and blocking draughts can be another way to run your home more efficiently.

If you are still struggling with bill payments, you might also want to speak to a switching service to find out if you are on the best possible tariff. If a better deal is found in your area, you may find that switching supplier can be a great way to save some much-needed cash.

Posted by Charlie Moore