Sentiment slips further following February rate hike

According to the Westpac-Melbourne Institute survey, consumer sentiment declined by 2.6% to 90.5 in February 2026, following the RBA’s first interest rate increase in over two years. While the fall was widely anticipated and relatively muted in isolation, sentiment has fallen by 12.8% since November 2025.

The February result highlights growing pressure on household budgets. The sub-indices show consumers feeling worse off and less willing to commit to major discretionary purchases. With interest rate expectations rising sharply, confidence is likely to remain subdued in the near term, particularly among mortgage holders.

For retailers, the first half of 2026 is expected to be challenging with persistent cost-of-living pressures and discretionary spending remaining highly sensitive to value. Promotional periods such as Black Friday have become increasingly influential in shaping spending patterns, with consumers timing purchases around major sales events. Brand loyalty is therefore harder won, requiring retailers to differentiate through personalised targeting and seamless experiences across bricks and mortar and online channels.

The most recent ABS Household Spending Indicator recorded a 0.4% decline in December 2025, following strong growth in October and November. Despite the monthly fall, December sales were 5.0% higher than December 2024, suggesting underlying demand is resilient but increasingly shaped by promotional timing. NAB Online Retail Sales data showed a 4.3% fall in December compared to November, also reflecting the dominance of the November sales period. December 2025 online sales were 6.2% higher than December 2024 figures. The decline in both sources of sales data was driven by softer spending in discretionary categories such as clothing, footwear, and household goods. The results suggest consumers remain willing to spend when value opportunities arise.

Source: Westpac – Melbourne Institute Consumer Sentiment Index

According to the Westpac-Melbourne Institute survey, consumer sentiment declined by 2.6% from 92.9 in January to 90.5 in February 2026, representing a further deterioration in confidence. The February result signals growing strain on household budgets as both higher inflation and rising borrowing costs weigh on consumers. The muted response relative to previous rate‑hike episodes reflects the fact that the move was widely anticipated; shown in the 12.8% fall in sentiment seen since November 2025. Sentiment is now firmly back in pessimistic territory, and over 80% of consumers now expect further interest rate rises over the next 12 months.

The sub-index movements in February show a clear weakening in current conditions, with some limited resilience in near-term expectations:

• ‘family finances vs a year ago’ down 4.7% to 78.8;

• ‘family finances next 12 months’ down 0.1% to 97.7;

• ‘economic conditions next 12 months’ up 0.1% to 88.5;

• ‘economic conditions next 5 years’ down 2.5% to 94.1; and

• ‘time to buy a major household item’ down 5.6% to 93.5.

The February decline was driven primarily by weaker assessments of current finances and a sharp drop in major‑item buying sentiment, both reflecting the combined pressures of inflation and the RBA’s 0.25% February rate hike. While near‑term expectations held broadly steady, consumers remain highly sensitive to policy signals, and the 16.1% surge in the separate Interest Rate Expectations index to 177.5 (its highest index level since mid‑2023) underscores concern about further tightening.

Source: Australian Bureau of Statistics

The most recent ABS Household Spending Indicator (ABS HSI) recorded a 0.4% decrease (seasonally adjusted) in December 2025, following a solid run of growth in October and November. Despite the monthly fall, household spending remained 5.0% higher than December 2024, underscoring some resilience in underlying demand amidst cost-of-living pressures. The December figure is partly attributable to the pull-forward effects from major sales events earlier in the quarter, as consumers brought forward purchases of clothing and footwear, furnishings, and household equipment into the Black Friday period.

Most sub-categories fell in December:

• ‘Alcoholic beverages and tobacco’ up 2.0%

• ‘Transport’ up 0.6%

• ‘Hotels, cafes, and restaurants’ up 0.5%

• ‘Food’ down 0.4%

• ‘Recreation and culture’ down 0.5%

• ‘Miscellaneous goods and services’ down 0.9%

• ‘Health’ down 1.3%

• ‘Furnishings and household equipment’ down 1.7%

• ‘Clothing and footwear’ down 2.4%

The decline in December was driven primarily by ‘clothing and footwear’ (-2.4%) and ‘furnishings and household equipment’ (-1.7%), reflecting the pull-forward effect of Black Friday sales as households maximised value on big-ticket items on sale in November. This weakness was partially offset by ‘alcoholic beverages and tobacco’ (+2.0%), with the festive season, including the holidays, the Ashes series, and end-of-year celebrations contributing to higher spending in this category. These shifts show that while consumers are value-conscious, they still look to splurge in smaller ways during the festive season.

Spending fell on both goods (-0.5%) and services (-0.3%) in December 2025 compared to November 2025. When compared to December 2024, December 2025 spending on services rose by 6.6% whereas spending on goods rose by 3.7%.

Source: NAB Online Retail Sales Index

The NAB Online Retail Sales in December 2025 decreased by 4.3%, reversing a strong increase of 5.0% in November 2025. Sales contracted (compared to November 2025) across the categories with homewares and appliances (-7.2%), and fashion (-6.6%) taking the strongest hit, after rapid growth in November during the Black Friday sales period. The only growth recorded was in takeaway foods (+4.7%) as seasonal festivities kept spending strong in this category. NAB data estimates Australians spent $68.35 billion on online retailing, making up approximately 15.1% of total retail spend. December online sales were 6.2% above December 2024. That growth is below recent years’ which have shown double-digit growth in December.