Poorer family festive spirit

Subdued spending plan

MANY Australians are planning to cut back on Christmas spending this year as inflation and interest rates weigh heavily on family finances and consumers react poorly to the federal budget, Westpac says.

Westpac chief economist Bill Evans said Christmas spending plans were “very subdued this year”.

Almost 40 per cent of consumers expect to spend less on gifts – the highest proportion planning cutbacks since Westpac started asking consumers about Christmas shopping plans in 2009. The average has been 33 per cent.

The Westpac-melbourne Institute Consumer Sentiment index for November fell 6.9 per cent to 78 points, pointing to a slowdown in spending.

Consumer sentiment is now below the low point of the GFC (79.0) and only slightly higher than when the pandemic first hit in April 2020 (75.6).

Apart from the start of Covid, it’s the weakest since a recession in the early-1990s.

The latest sentiment decline follows ABS figures showing inflation surged from 6.1 per cent in June to 7.3 per cent in September, with official forecasts for inflation to go even higher by the end of 2022 and to remain relatively high through 2023.

Mr Evans said consumers would also have been unnerved by forecasts in the federal budget last month showing electricity prices are expected to increase by 56 per cent over the next two years.

“The budget looks to have been poorly received in terms of its immediate support for household finances,” he said.

After every federal budget, Westpac asks consumers what impact they expect it to have on their family finances over the next 12 months.

“The proportion responding that the October budget has worsened their financial outlook was a historically high 35 per cent,” Mr Evans said.

“While that is well short of the 58 per cent recorded following the newly elected Coalition government’s ‘horror’ budget of 2014, it is the secondhighest since then and well above the 14-year average of 30 per cent.”

It’s also a “high inflation story”, with the government taking a restrained approach to fiscal policy so that it does not stoke inflation pressures.

Meanwhile, a survey by NAB shows that business conditions remain strong, but business confidence weakened in October.

NAB’S monthly business survey for October showed business conditions fell 1 point to 22 index points, but remained well above the longterm average.

“Conditions remained strong in October with demand still very elevated and profitability holding up,” NAB chief economist Alan Oster said. “As we have seen in official data, consumers continue to spend despite headwinds from inflation and interest rates, and that run of strength looks to have carried on into October.”