Consumer pessimism deepens as household finances deteriorate

According to the Westpac-Melbourne Institute survey, consumer sentiment decreased by 2.9% to 80.6 in June 2026. The result highlights the ongoing impact of cost-of-living pressures, with sentiment dipping to near multi-decade lows as households contend with rising cost-of-living and borrowing costs, pointing to a more cautious outlook for consumer spending in the months ahead.

For retailers, conditions remain among the most challenging in recent years. The June sentiment read sits close to the lows of the initial COVID-19 period. Unlike the COVID-19 period, when households benefited from the run-off of savings and government support, consumers are now facing sustained pressure from higher fuel, food, and borrowing costs directly impacting their propensity to spend on discretionary items. At the same time, retailers are contending with rising transport, freight and operating costs, creating pressure on margins.

The most recent ABS Household Spending indicator recorded a 1.1% decrease in April 2026, reversing the increase recorded March. The decrease was driven by a reduction in transport spending as government relief cushioned rising fuel prices, however signs of reduction in discretionary spending were also evident.

Source: Westpac – Melbourne Institute Consumer Sentiment Index

According to the Westpac‑Melbourne Institute survey, consumer sentiment decreased by 2.3% from 83.0 in May 2026 to 80.6 in June 2026, reflecting increasing pressure on household finances and growing concern about the economic outlook. This result is among the weakest seen in the fifty-year history of the survey. The continued deterioration in sentiment reflects the cumulative impact of a third consecutive interest rate increase, inflationary concerns and ongoing cost-of-living pressures, which continue to weigh heavily on household budgets.

The component indices now all sit in deeply pessimistic territory despite some improvement in two of them in June:

• ‘family finances vs a year ago’ down 7.5% to 67.3;

• ‘family finances next 12 months’ down 8.5% to 85.1;

• ‘economic conditions next 12 months’ up 4.9% to 77.8;

• ‘economic conditions next 5 years’ down 3.2% to 86.5; and

• ‘time to buy a major household item’ up 0.9% to 86.4.

The Unemployment Expectations Index decreased 0.1% to 139.8, suggesting consumers remain on edge about job prospects. The House Price Expectations Index decreased 14.9% to 128.2, dropping below the long-run average of 130 for the first time in nearly three years. The Interest Rate Expectations Index increased 4.8% to 172.6, showing that just over two thirds of consumers expect borrowing costs to increase over the next 12 months.

Cost-of-living pressures remain front of mind for consumers, with the temporary fuel excise relief providing only limited support against broader increases in fuel, food and household expenses. The decline in house price expectations also suggests households are becoming increasingly cautious about the broader economic outlook, with concerns extending beyond day-to-day living costs to the potential impact of higher interest rates and the impact of the 2026-27 Federal Budget on household wealth and financial security.

Source: Australian Bureau of Statistics

The most recent ABS Household Spending Indicator (ABS HSI) recorded a 1.1% decrease (seasonally adjusted) in April 2026, largely offsetting the 1.6% increase recorded in March. Household spending was 4.9% higher than April 2025, only slightly ahead of inflation of 4.2% over the same period. The decrease in April was largely attributable to decreases in transport spending, as government fuel excise incentives helped combat the increased fuel prices in March amidst the conflict in the Middle East.

Household spending by sub-category was as follows:

• ‘Health’ up 0.5%

• ‘Hotels, cafes and restaurants’ up 0.5%

• ‘Alcoholic beverages and tobacco’ up 0.3%

• ‘Furnishings and household equipment’ down 0.1%

• ‘Recreation and culture’ down 0.2%

• ‘Miscellaneous goods and services’ down 1.0%

• ‘Food’ down 1.3%

• ‘Clothing and footwear’ down 2.2%

• ‘Transport’ down 4.7%

While the decrease in April 2026 was driven primarily by ‘transport’ (-4.7%), some reduction in discretionary categories became evident. Spending on ‘clothing and footwear’ (-2.2%) decreased, also impacted by unseasonably warm conditions in April which has led consumers to delay their winter purchases and instead wait for EOFY sales in May and June to maximise value.