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Highlights
- Australia’s consumer confidence level improved during the past week.
- Improvement can be seen across the labour market, where wages have risen, and foreign investment has also poured into the country.
- Rising inflationary pressures are a byproduct of an improvement in consumer confidence.
Easing restrictions have brought along with them an improvement in major economic indicators, with the most recent progress being observed in consumer confidence. The ANZ-Roy Morgan consumer confidence showed an uptick of 1.3% during the past week. The rise observed during the week ended 21 November more than compensated for the fall in confidence in the prior week.
Much of this push to consumer confidence has come after the removal of lockdowns and the resumption of business activity across Australia. As a result of the reopening of the economy, consumers have flocked to the markets, easing their pent-up demand that had been built over the lockdown period. Retail and hospitality businesses have benefitted greatly from this repressed consumer demand.
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What does this indicate?
The rise in consumer confidence is underpinned by a rebounding economy and indications of growing demand. In the backdrop of these improving figures are the recovering wages. With a rise in labour demand, wages have also risen subsequently, reinstating some belief amid the employed masses.
Additionally, with foreign companies such as Google investing in Australia, the future of the Australian labour markets seems to be in a better spot. The investment venture is expected to add money to the economy and offer additional jobs to the population.
Another important factor to consider is the opening of international borders and the introduction of travel bubbles with various countries. From December, the country is expected to increase its overall travel channels with the countries and offer greater access to foreign markets. This is likely to have direct implications on the hospitality sector and the overall exports of the country. In a way, these recent events have reinstated some faith in the population.
Higher inflation ahead?
As consumers await the Christmas season, much of the holiday cheer can already be felt in the markets. If the COVID situation remains under control, a further increase in consumer confidence can be expected in the coming months. This would majorly arise from increased retail shopping around the holiday period.
However, with the rise in demand, a subsequent increase in prices could also be expected. Inflation levels have already surpassed the expectations of economists and experts and are expected to bring major earlier-than-expected policy changes in the next year.
A crucial factor impacting the overall inflation is the supply-side constraints that have gripped the entire world. With a lack of adequate raw materials and delayed shipments, inflationary pressures could further seep in and prompt a contraction in the economy.
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Bottom Line
No doubt, a rise in consumer confidence could potentially help the economy recover in the coming months. In fact, the economy seems better positioned right now than the first lockdown, making the current rise in consumer confidence a potential gateway to normalcy. However, as profit margins decline among businesses and confidence improves further, producers are expected to face pressure to pass on the high costs to consumers with a price rise.
