Australians are feeling increasingly pessimistic about their household finances even as signs suggest the economy is set to improve.
Consumer confidence slipped in the latest survey from Westpac and the Melbourne Institute, with sentiment declining 0.7 per cent from December.
The mood remains on the pessimistic side, with the index recording a figure of 92.1. A score of 100 denotes neutral sentiment.
Underpinning this is the sense among consumers that they are increasingly worse off.
Respondents' assessments of their finances compared to a year ago fell 7.8 per cent, with renters and outright homeowners particularly feeling like they are going backwards, said Westpac chief economist Luci Ellis.
"As well as the ongoing unsettled global backdrop, it is possible that consumers were reacting to news about the depreciation of the Australian dollar against the US dollar, which resulted in some negative headlines about the outlook for interest rates and the broader economy," she said.
But sentiment has improved markedly since a year ago and some components of the index suggest consumers are more optimistic about the future.
While measures tracking current conditions declined, forward-looking ones were flat or increasing, with consumers increasingly optimistic about the outlook for family finances and the economy.
AMP economist My Bui expects consumer sentiment to rise further in 2025, "especially with a likely near-term rate cut as well as lower headline inflation".
Interest rate expectations were largely unchanged in the survey. More consumers still expect mortgage rates to increase over the next 12 months than fall, although the gap is narrowing.
Economists are more optimistic about the outlook for interest rates.
With December quarterly inflation tipped to come in below the Reserve Bank of Australia's expectations, ANZ and Commonwealth Bank expect the central bank to cut rates by 25 basis points at its next meeting in February. NAB and Westpac are also predicting the RBA to start easing in the next few months, but have pencilled in an initial rate cut for May.
"Recent communications indicate that the board is becoming more confident about returning inflation to the two-three per cent target band," Ms Ellis said.
Melbourne Institute's Associate Professor Sam Tsiaplias also believes rates will start falling in 2025.
That assessment was backed up by the institute's monthly Inflation Gauge, which showed price growth continuing to ease. It estimated underlying inflation climbed 0.7 per cent in the December quarter, although inflationary risks remained.
"If rate cuts commence too early, that may create additional inflationary pressure, hampering the ability to fully commit to a series of rate cuts in the future," Assoc Prof Tsiaplias said.
"On the other hand, waiting too long to cut rates constitutes an unnecessary handbrake on economic conditions."
