Consumer sentiment hits 3-year high on rate cut, easing inflation

James Thornhill
02:00pm March 11 2025

Man looks at washing machines and dryers in an electrical store. (Getty)

Australian households are feeling increasingly optimistic about their finances, with falling interest rates and easing inflation combining to boost confidence. 

The Westpac–Melbourne Institute Consumer Sentiment Index jumped 4 per cent in March, to 95.9 from 92.2 in February, to bring the index back in sight of the ‘neutral’ level of 100, where there are the same number of optimists as pessimists. 

“The recovery in consumer sentiment, which began in the second half of last year but lost its way a little over the Christmas-New Year period, regained momentum in March,” said Matthew Hassan, Head of Australia Macro Forecasting at Westpac.

“The RBA’s decision to cut interest rates in February and a further easing in cost-of-living pressures have provided a clear lift.”
 

The sub-index which asks whether now is a good time to buy a major household item showed the biggest increase, rising 6.9 per cent. 

This component has been hit hard by the inflationary shock of the past two years, registering both the longest and deepest period of pessimism since the survey began in the mid-1970s, however there are now clear signs that the shock is dissipating, Hassan said. 

There are also early signs that improving buyer sentiment is translating into actual spending. 

Household spending rose 0.4 per cent in January, according to Australian Bureau of Statistics data published earlier this month, the fourth month in a row that spending has increased.

"Household spending, while not strong, is maintaining decent momentum," said Westpac economist Neha Sharma. 

"Even after accounting for inflation, ‘real’ spending appears to be growing. Westpac’s Card Tracker Index also suggested some additional strength in January. However, spending activity may have faded a little in early February."

Overseas focus

Despite the overall improvement in sentiment, there are still signs of unease, particularly around developments abroad, Hassan said.

The latest survey included additional questions on news recall, with more than 15 per cent of respondents recalling news on “international conditions.” Of those, 82 per cent assessed this as unfavourable compared to 68 per cent in mid-2024. 

“While it is not the most pressing concern, the US ‘tariff war’ and deteriorating relations with some of its allies is clearly unsettling,” Hassan said. 

That unease is reflected in consumers remaining cautious on the outlook for the economy.

The sub-indexes which track the economic outlook for the next 12 months and 5 years both picked up in March but remain well below peaks seen in November around the time of the US Presidential election. 

The topic of inflation still had the highest news recall among respondents and while 65 per cent viewed the news as unfavourable that was an improvement from 75 per cent back in December.

Consumers are also feeling better about the prospects for the jobs market, with the unemployment expectations index dropping to its lowest level since early 2023 (a lower reading indicates more respondents expect unemployment to decline). 

Adding to the positive tone, people are feeling more bullish about the outlook for house prices and have growing confidence that interest rates will continue to track lower.

Westpac economists expect a further slowing in inflation will enable the RBA to deliver more rate cuts this year with the next move coming at the May meeting. 

“That in turn suggests the gradual consumer recovery, which this latest consumer sentiment update shows rests on an expectation of further interest rate easing, should remain on track,” said Hassan.

For more insights on the latest consumer sentiment report, visit WestpacIQ. 
 

James Thornhill

James Thornhill was appointed as editor of Westpac Wire in May 2022. Prior to joining the bank, he was a business and financial journalist with more than two decades of experience with international newswires. Most recently, he was a resources correspondent for Bloomberg, covering the mining and energy sectors, and previously reported on a broad range of topics from economics and politics to currency and bond markets. Originally from the UK, he’s had stints working in London, New York and Singapore, but is now happily settled in Sydney.

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