Sentiment edges higher but remains fragile

According to the Westpac-Melbourne Institute survey, consumer sentiment increased by 1.2% to 91.6 in March 2026 from 90.5 in February. While the increase signals a modest improvement in headline confidence across the survey period, sentiment remains firmly in pessimistic territory and by the end of the survey week sentiment was trending at 84.

For consumers, escalating geopolitical tensions and the potential for higher petrol and food prices are adding to existing cost-of-living pressures. Combined with higher interest rates and persistent inflation in essential categories, these factors are likely to materially dampen discretionary spending in the coming months.

For retailers, the environment is becoming increasingly complex. Consumers were already pessimistic heading into 2026, and the combination of rising living costs and global uncertainty is reinforcing a cautious approach to spending. As a result, retailers are facing headwinds from multiple angles with a more wary consumer coupled with margin pressure from rising operating costs, including transport and logistics.

The most recent ABS Household Spending Indicator recorded a 0.3% increase in January 2026 following a decline in December. Spending was 4.6% higher than January 2025.

Source: Westpac – Melbourne Institute Consumer Sentiment Index

According to the Westpac-Melbourne Institute survey, consumer sentiment increased by 1.2% from 90.5 in February 2026 to 91.6 in March 2026.

While headline sentiment improved, it remains firmly in pessimistic territory and continues to reflect a cautious consumer environment. Survey responses highlighted a material weakening in confidence during the latter part of the survey period, with readings in the final days falling significantly lower, signalling a fall to approximately 84. Sentiment continues to be highly sensitive to economic and geopolitical developments, including escalating global conflict and rising expectations for higher petrol and food prices.

The sub-indexes were mixed in March:

• ‘family finances vs a year ago’ up 1.8% to 80.2;

• ‘family finances next 12 months’ down 0.1% to 97.6;

• ‘economic conditions next 12 months’ down 2.9% to 85.9;

• ‘economic conditions next 5 years’ up 2.4% to 96.3; and

• ‘time to buy a major household item’ up 4.9% to 98.0.

Housing-related sentiment also deteriorated further. The ‘time to buy a dwelling’ index fell 1.3% to 82.9, more than 36 points below its long-run average of 120. The decline was particularly pronounced among mortgage holders, where the index dropped sharply to 73, reflecting the ongoing impact of higher borrowing costs. The Unemployment Expectations Index also increased by 3.8% to 134.7, suggesting more consumers expect labour market conditions to weaken over the coming year.

Households remain cautious. Cost-of-living pressures, higher borrowing costs (likely to get higher) and rising global uncertainty continue to weigh on consumer confidence, with discretionary spending likely to remain highly sensitive to further economic developments in the months ahead.

Source: Australian Bureau of Statistics

The ABS Household Spending Indicator increased by 0.3% in January 2026 following a decline in December. The increase was primarily driven by services spending (+1.0%), supported by higher spending on digital streaming, travel, dental and health services, partially offset by a fall in spending on goods (-0.3%), driven by lower purchases of motor vehicles and recreation and culture goods.

The sub-categories in January had a mixed result:

• ‘Alcoholic beverages and tobacco’ down 1.7%

• ‘Furnishings and household equipment’ down 0.7%

• ‘Hotels, cafes, and restaurants’ down 0.6%

• ‘Recreation and culture’ down 0.1%

• ‘Food’ up 0.1%

• ‘Clothing and footwear’ up 0.3%

• ‘Transport’ up 0.3%

• ‘Health’ up 1.7%

• ‘Miscellaneous goods and services’ up 2.5%

Non-discretionary spending increased by 0.8%, largely driven by health services and spending on motor vehicle repairs and maintenance. Discretionary spending only increased marginally (+0.1%), supported by spending on air transport, personal effects, and recreational and cultural services. Overall, the results suggest that household spending is dominated by non-discretionary spending which is limiting capacity for discretionary retail categories. This trend is likely to remain for a few months.

The January 2026 result is 4.6% above January 2025.

Source: NAB Online Retail Sales Index

NAB Online Retail Sales rebounded in January 2026 (+2.1%) reversing the contraction in December 2025 (-2.1%). On an annual basis, online retail sales are up 12.4% from January 2025. Growth in January was led by grocery and liquor (+4.8%) and fashion (+4.1%), both of which recovered following declines in the previous month. Most states recorded positive monthly growth, led by Tasmania (+3.1%) and New South Wales (+3.0%). However, some categories continued to show weakness, particularly homewares and appliances (-0.8%), which declined for a second consecutive month following a significant decrease in December (-7.2%). This is likely the hangover after material cyber sales spending in November 2025. Australians spent an estimated $68.9 billion online in the twelve months to January, representing c.15.2% of total retail trade.