By James Glynn


SYDNEY--Australian consumer sentiment weakened in January with around two thirds of survey respondents now expecting mortgage interest rates to rise in 2026.

The Westpac-Melbourne Institute consumer sentiment survey showed confidence dropped 1.7% to 92.9 in January from December with consumers also less upbeat about employment prospects.

The increasingly pessimistic outlook comes as the Reserve Bank of Australia has signaled that further interest rate cuts are now off the table given that inflation remains troubling against the backdrop of a strong recovery in consumer spending late last year.

Conditions in the economy are such that the RBA may start raising interest rates as early as next month, with a number of economists also forecasting a second increase in May.

"While confidence is still well above the extreme lows recorded during the protracted cost of living crisis in 2022-2024, consumers are becoming more concerned about what 2026 may bring for family finances and the wider economy," said Westpac's Head of Australian Macro-Forecasting, Matthew Hassan.

"The main catalyst continues to be a sharp turn in interest rate expectations. Nearly two thirds of consumers with a view now expect mortgage rates to move higher over the next 12 months, more than double the share back in September," he added.

The weakness in consumer sentiment in January supports the views of some economists that the RBA risks undermining the fragile economic recovery if it raises interest rates too soon.

Near-term expectations for family finances and the economy led the deteriorations in January, declining 4.5% and 6.5% respectively, the data showed.

This weakness was partially offset by a small improvement in assessments of family finances versus a year ago and slight gains for the economic outlook over the next 5 years, while the willingness of consumers to buy a major household item also rose.

Notably, all sub-indexes recorded reads below 100, something that has occurred only twice since October 2024, the data showed.


-Write to James Glynn at james.glynn@wsj.com


(END) Dow Jones Newswires

01-12-26 1859ET