CONSUMER sentiment has fallen by its largest amount since the height of the global financial crisis.
Rising interest rates and a negative public response to the federal budget has taken its toll on confidence, according to the latest Westpac-Melbourne Institute consumer sentiment index released today.
The index fell seven per cent this month, its second consecutive monthly fall and the largest drop since October 2008.
It was also the lowest index reading since June 2009 when it was at 100.1 points, just above the 100 level which separates optimists from pessimists.
In response to the survey, the Australian dollar lost one US cent to an eight-month low of US 85.19 cents in the minutes after the data were released.
"This result indicates that the response to the budget was negative on balance, but we expect that the most important factor causing such a large fall in the headline index was the rate hike,'' Westpac chief economist Bill Evans said.
The survey was conducted after the federal budget and an interest rate rise by the Reserve Bank of Australia (RBA), which lifted the cash rate in May for the third consecutive month this year.
While just over half of the respondents (51 per cent) said the budget would have little impact, 27 per cent indicated their finances would worsen.
Eleven per cent said their finances would improve and 10 per cent said they didn't know.
The survey's sub-index that assesses the economic outlook for the next 12 months fell 17.3 per cent, while the five-year outlook fell 10.6 per cent.
The confidence of respondents with a mortgage fell 8.1 per cent in May, compared with average falls of only 2.3 per cent, in response to the five previous rate hikes, the survey showed.
The Time to Buy a Dwelling sub-index fell 15.4 per cent to 88.2, which was 35.6 per cent below the sub-index's long-run average.
The sub-index has fallen 40 per cent since its peak in August 2009, but has been at lower levels in 2008, 2004 and the early 1990s.
"We have written in the past about sensitivity points for mortgage rates above which sentiment can be damaged quite substantially,'' Mr Evans said.
"In the last rate-hike cycle that point was reached in March 2005 when the mortgage rate was increased from 7.05 per cent to 7.3 per cent.''
The re-emergence of global economic nervousness has also weighed on respondents.
Since the April survey, Australian shares fell 6.8 per cent, while the Australian dollar fell 4.2 per cent, the survey said.
Expectations for family finances over the next 12 months also fell 3.6 per cent.
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