(Bloomberg.com) — Australian consumer sentiment plunged to their lowest level since August 2020, as rising costs of living and higher interest rate increases scared households.

In May, the consumer confidence index fell 5.6% to 90.4 point, which indicates that optimists outnumber pessimists. Westpac Banking Corp. released a statement on Wednesday. 

Excluding shocks to confidence associated with the pandemic, May’s decline is the largest since June 2015, when a steep fall in global share markets was triggered by concerns about the stability of the European financial system and a slowdown in China.

Survey of 1200 participants was completed between May 1, 2005, and May 5, 2005. This included the higher-than-expected 25 base point rate hike by Reserve Bank of Australia (0.35%) to 1.

“Two stunning developments are clearly unnerving consumers,” said Bill Evans, chief economist at Westpac. The RBA raised the cash rate by last week after citing headline inflation of April 27, which showed that consumer prices had surpassed 5%. 

“While headline inflation pressures may ease from this point, consumers are aware that the Reserve Bank plans to continue increasing the cash rate for some time,” Evans said. “The prospect of rising interest rates is clearly weighing on respondents despite the prospect of higher bank deposit rates.”

In the May survey, economic outlook assessment also declined. The “economy, next 12 months” sub-index plunged 5.8% to 90.4 and the “economy, next 5 years” sub-index dived 4.1%. 

The surge in prices continues to impact on attitudes toward spending with the “time to buy a major household item” sub-index — an indicator of consumer spending outlook — slumping 5.7%.

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