Australian Consumers Optimistic Despite Rising Fuel Prices

Shoppers ride an escalator at Melbourne Central during the Boxing Day sales in Melbourne, Australia, on Dec. 26, 2021. (Diego Fedele/Getty Images)

Australians are feeling increasingly optimistic as the Omicron peak passes and international borders are set to reopen.

The ANZ-Roy Morgan consumer confidence index increased by 3.3 percent during the second week of February, the highest weekly gain since early April 2021.

“The passing of the Omicron peak along with the news that international borders will reopen to vaccinated tourists later this month no doubt helped lift sentiment despite rising petrol prices,” ANZ Head of Australia Economics David Plank said.

While the index rose above the neutral level of 100, it was still well below the long run average, Plank added.

The lift was seen across the nation, with Queensland leading the increase, followed by Western Australia and New South Wales.

Inflation expectations increased 0.2 percent, returning to a high of 5 percent while the average national fuel price hit a new record high of 176.9 cents a litre.

As tensions continue to mount between Russia and Ukraine, the possibility of fuel prices going down are increasingly unlikely.

Brent crude oil has been steadily approaching US$100 a barrel and petrol prices are likely to follow its upward trend, further driving inflation.

A persistent rise in inflation alongside a fall in unemployment rate are key factors behind market expectations of a potential interest rate rise this year.

However, the Reserve Bank of Australia (RBA) is prepared to be patient in monitoring factors affecting inflation before increasing the cash rate.

The minutes of the February monetary board meeting reiterated that the members agreed it was too early to conclude that inflation was sustainably within the target band of 2 to 3 percent.

Philip Lowe, Governor of the Reserve Bank of Australia, addresses the National Press Club at The Fullerton Hotel in Sydney, Australia, on Feb. 2, 2022. (Lisa Maree Williams/Getty Images)

“Members remained committed to maintaining highly supportive monetary conditions to achieve the objectives of a return to full employment and inflation consistent with the target,” the minutes said.

Wages growth was also observed to be at modest levels and members believe there is likely to be some time before it will grow to a level consistent with the inflation target band.

RBA Governor Philip Lowe said a rate hike this year was “plausible,” in his speech to the National Press Club and appearance before the House of Representatives economics committee.

But he added that he wanted to see a couple more quarterly inflation reports before making a decision to hike rates.

Meanwhile, economists are confident that Australia will get its first cash rate increase during the second half of the year.

Commonwealth Bank even shifted its prediction for first cash rate hike from August to June.

“Our expectation is that the RBA will shift to an explicit hiking bias at the May Board meeting following a big upside surprise on the Q1 22 (March quarter) underlying CPI,” Commonwealth Bank Head of Australian Economics Gareth Aird said.