Renewed inflation fears drag sentiment back into pessimistic territory

According to the Westpac–Melbourne Institute survey, consumer sentiment decreased 3.5% from 95.4 to 92.1 in October 2025, slipping back into firmly pessimistic territory and reversing the gains recorded between May and August. The decline reflects renewed inflation concerns and uncertainty around the timing of future interest rate cuts.  The sentiment result suggests that short-term disposable income expectations have deteriorated, even as long-term confidence edged slightly higher. Despite recent rate cuts, sentiment has proven highly reactive, and many consumers appear unconvinced that monetary policy easing will continue this year.

For retailers, the outlook remains challenging but not without opportunity. While spending expectations have softened slightly, households are expected to take advantage of upcoming Black Friday and Cyber Monday promotions to make value-driven purchases and early Christmas purchases. In this environment, success will hinge on targeted discounting and leveraging customer data to create personalised, multi-channel experiences. Bricks-and-mortar operators can differentiate through in-store experiences and service quality, complemented by online promotions to capture demand across channels.

The ABS Household Spending Indicator (ABS HSI) rose 0.1% in August 2025 compared to July, supported by transport and services spending, while goods spending contracted. August sales were 5.1% higher than August 2024. NAB Online Retail Sales decreased 0.1% but remain 15.1% higher than August 2024, reflecting ongoing consumer preference for online channels despite cost pressures.

Source: Westpac – Melbourne Institute Consumer Sentiment Index

According to the Westpac–Melbourne Institute Index, consumer sentiment decreased 3.5% from 95.4 to 92.1 in October 2025, slipping further into pessimistic territory to reach a six-month low. The decline reversed all gains recorded between May and August following the mid-year rate cuts, as renewed concerns about inflation and uncertainty over the timing of future rate reductions appears to be weighing heavily on consumer confidence.

Four-out-of-five of the subindexes decreased in October 2025:

• ‘family finances next 12mths’ down 9.9% to 97.1;

• ‘family finances vs a year ago’ down 4.8% to 82.1;

• ‘economic conditions next 12mths’ down 2.5% to 89.9;

• ‘time to buy a major household item’ down 1.1% to 97.2; and

• ‘economic conditions next 5yrs’ up 1.4% to 94.0.

The largest decline in October 2025 was recorded in the ‘family finances next 12 months’ sub-index, which fell nearly 10% to its lowest level in over a year. The sub-index now sits in moderately pessimistic territory, reflecting growing concern about disposable income over the short term. The backward-looking ‘family finances vs a year ago’ measure also declined 4.8%, suggesting that the boost from earlier tax and interest rate cuts is beginning to fade. The only improvement came from the long-term ‘economic conditions next five years’ sub-index, which rose 1.4% to 94.0. Although still in net pessimistic territory, the slight increase indicates that households remain cautiously optimistic about more stable economic conditions and the prospect of further rate cuts over the longer term. Meanwhile, the ‘time to buy a major household item’ sub-index edged 1.1% lower to 97.2, remaining in broadly neutral territory.

The October consumer sentiment reading points to consumers remaining cautious and cost-conscious following recent inflation headlines. While sentiment around long-term conditions has stabilised, short-term confidence remains fragile as households await clearer signals on the path of monetary policy. For retailers, the outlook suggests a subdued but resilient spending environment heading into end-of-year sales events, with value-driven spending and promotional sensitivity likely to dominate consumer behaviour until confidence begins to recover.

Source: Australian Bureau of Statistics

The most recent ABS Household Spending Indicator recorded a 0.1% increase (seasonally adjusted) in August 2025, representing a c. 5.1% or $3.8bn increase on August 2024. Growth slowed in August following a relatively strong mid-year period, with the ABS HSI up 0.5% in June 2025 and 0.3% in July 2025. Growth still remains on a full-year basis with the August result marking ten increases for the index out of the last twelve months.

Household spending by sub-category was mixed across the month:

• ‘Transport’ up 0.8%

• ‘Miscellaneous goods and services’ up 0.8%

• ‘Clothing and footwear’ up 0.5%

• ‘Hotels, cafes and restaurants’ up 0.3%

• ‘Food’ up 0.1%

• ‘Health’ unchanged (0.0%)

• ‘Furnishings and household equipment’ down 0.1%

• ‘Alcoholic beverages and tobacco’ down 0.9%; and

• ‘Recreation and culture’ down 0.9%.

Growth in August was led by ‘transport’ as households increased spending on airline travel and accommodation services. The ‘alcoholic beverages and tobacco’ subcategory recorded the equal largest decline of 0.9% in August 2025, following falls of 1.5% in July 2025 and 2.8% in June 2025. Similar to July, the subcategory was impacted by the extended cold and wet winter conditions through August. Throughout the year, growth has been strongest in ‘miscellaneous goods and services’ (+8.9%) and ‘health’ (+8.0%). Goods spending contracted by 0.2% in August 2025, while services spending grew by 0.5%. Services also outpaced goods on a year-on-year basis, up 8.1% compared with August 2024, while goods spending rose by 2.5%.

The modest rise in the overall index also reflected a 0.2% increase in discretionary spending, offset by a 0.1% decline in non-discretionary spending. Non-discretionary spending remains ahead on an annual basis, 5.6% above August 2024 compared with discretionary spending at 4.7%. Regionally, the strongest growth in household spending was recorded in the ACT (+2.9%) and Tasmania (+0.6%), while the Northern Territory (-1.2%) saw the largest contraction.

Source: NAB Online Retail Sales Index

The NAB Online Retail Sales in August 2025 decreased by 0.1%, following a revised decrease of 1.1% in July 2025. Growth remained high in year-on-year terms, with seasonally adjusted sales increasing 15.1% between August 2024 and August 2025. Growth was mixed in August, resulting in an almost flat result overall, with decreases in ‘department stores’ (-3.7%) and ‘takeaway foods’ (-1.9%) given no seasonal promotional activity. This was offset by increases in the other categories such as ‘fashion’ (+2.8%), ‘games and toys’ (+1.6%) and ‘homewares and appliances’ (+1.3%). The ‘homewares and appliances’ increase shows this category is trending higher in growth terms, which is consistent with a pick-up in house prices and housing turnover. NAB data estimates Australians spent $65.65 billion on online retailing, making up 14.8% of total retail spend.