Rising Interest Rate Anxiety Weighs on Australian Consumer Sentiment as Confidence Slides

Rugman_Walking · 2026-01-15T12:33:17+00:00

Australian household sentiment is cooling, with the Consumer Sentiment Index falling to 92.9 due to rising concerns over interest rates and employment stability. Nearly two-thirds expect mortgage rates to rise, while fears of job losses compound this anxiety, creating a challenging economic outlook.

Rugman_Walking

2026-01-15 12:33:17

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The latest economic pulse check reveals a notable cooling in Australian household sentiment, as families grapple with mounting concerns over borrowing costs and employment stability. The Westpac-Melbourne Institute Consumer Sentiment Index retreated 1.7% to 92.9 in January, extending a downward trend that keeps sentiment firmly entrenched below the 100 neutral threshold.

Interest Rate Expectations Drive the Downturn

What’s striking about this latest reading is the sharp shift in how Australians view the interest rate environment. Nearly two-thirds of surveyed consumers now expect mortgage rates to climb within the next year—a dramatic jump from just 27% holding this view back in September. This heightened anxiety over rising interest rates has become the primary headwind for consumer confidence, eclipsing other economic worries.

The data paints a picture of households bracing for tighter financial conditions. Family finance forecasts for the upcoming 12 months declined 4.5%, while views on broader Australian economic conditions deteriorated by 6.5%, reflecting deepening uncertainty about what lies ahead.

Employment Concerns Compound the Weakness

Beyond interest rate pressures, labor market anxieties are intensifying. An increasing share of Australian consumers now anticipate job losses and a softening employment backdrop, adding another layer of caution to household decision-making. This overlap of interest rate concerns and employment uncertainty creates a challenging sentiment backdrop.

The Broader Context

Despite the current weakness, sentiment hasn’t returned to the depths of despair seen during the 2022-2024 cost-of-living crisis, when confidence hit historic lows. That said, with the Reserve Bank of Australia widely expected to keep rates unchanged through February and into 2026, consumers appear to be pricing in an extended period of elevated borrowing costs as a new normal, even if actual rate hikes don’t materialize immediately.

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