SYDNEY: Australia’s consumer sentiment weakened in February after the Reserve Bank of Australia lifted interest rates, with households reporting greater pressure on finances and a pullback in appetite for major purchases. The Westpac Melbourne Institute Consumer Sentiment Index fell 2.6% to 90.5 from 92.9 in January, leaving the gauge below the 100 mark that separates optimists from pessimists.
The RBA raised its cash rate target by 25 basis points to 3.85% on Feb. 3, its first increase in more than two years. In its decision statement, the central bank said inflation had picked up materially in the second half of 2025 and was likely to remain above its target for some time, citing stronger private demand, a firmer housing market and labour conditions that remained a little tight.
Survey details pointed to a deterioration in how households assessed their current position. The sub index for family finances compared with a year earlier fell 4.7% to 78.8, while the measure for whether it is a good time to buy a major household item dropped 5.6% to 93.5. Year ahead expectations were steadier, with family finances over the next 12 months at 97.7 and expected economic conditions over the next 12 months at 88.5.
Rate expectations also shifted sharply after the central bank move. The mortgage rate expectations index rose 16.1% in February to 177.5, the highest since June 2023. The report said more than 80% of respondents expected mortgage rates to rise over the next year, with just over one third expecting increases of a full percentage point or more.
Mortgage and housing signals diverge
Housing related readings showed weaker buyer sentiment alongside surging price expectations. The “time to buy a dwelling” index fell 6.3% to 84.0, while the house price expectations index climbed 3.9% to 173.9, a new 15 year high. State detail showed the house price expectations measure at 181 in Western Australia and 182 in Queensland, with Victoria at 160. Consumer sentiment dropped 17% to 80.5 in Queensland, and the survey also showed larger falls among women and low income households.
Fresh household spending data underscored uneven demand at the end of 2025 as higher borrowing costs and inflation weighed on budgets. The Australian Bureau of Statistics said household spending fell 0.4% in December from November to A$78.86 billion in seasonally adjusted current price terms, while spending was 5.0% higher than a year earlier. In volume terms, the ABS said the seasonally adjusted estimate rose 0.9% in the December quarter.
The ABS breakdown showed monthly declines in categories that tend to be sensitive to discretionary purchasing, including clothing and footwear and furnishings and household equipment. The bureau also reported a fall in health spending and a decline in recreation and culture, while transport rose and hotels, cafes and restaurants recorded a small increase. The December results followed stronger monthly gains earlier in the quarter.
RBA cites inflation and capacity pressures
The RBA said capacity pressures reflected greater momentum in demand, with both household spending and investment contributing, and it noted that activity and prices in the housing market were continuing to pick up. The central bank also said financial conditions eased over 2025 and that it was uncertain whether they remained restrictive, adding that credit was readily available to households and businesses.
On the labour market, the RBA said unemployment had been a little lower than expected and underutilisation remained at low levels, even as wage growth in the Wage Price Index had eased from its peak. The central bank said broader measures of wages growth remained strong and that growth in unit labour costs remained high. The rate rise decision was unanimous.
The consumer sentiment report said February’s fall was smaller than the average decline typically recorded after cash rate increases, and the headline index remained above the lows sustained through much of 2022 to 2024. The February sentiment survey was conducted among 1,200 adults across Australia during the week of Feb. 2 to Feb. 6 and weighted to reflect the national population distribution. – By Content Syndication Services.