Consumer Confidence Drops 9% in Australia Amid Inflation Concerns Despite Limited Stock Recovery

Consumer confidence in Australia witnessed a sharp decline in December, signaling rising concerns about inflation and interest rate paths, while the stock market showed a limited recovery supported by gains in banking and mining stocks.

The Westpac-Melbourne Institute Consumer Confidence Index dropped by 9% month-on-month to 94.5 points in December 2025, falling back below the neutral threshold of 100 that separates optimism from pessimism, after a temporary return to positive territory in November for the first time since February 2022. This decline followed a strong jump of 12.8% in the previous month, amid renewed inflation concerns.

Details showed a widespread deterioration in economic outlooks, with the one-year outlook index falling by 9.7%, while the five-year expectations dropped by 11.7%. Household conditions also exerted additional pressure, with evaluations of financial situations declining compared to last year and income expectations for the next twelve months decreasing. The index for 'the right time to buy major household items' also fell, reflecting weak consumer confidence in spending.

Conversely, labor market expectations improved, as the expected unemployment index decreased, indicating continued strength in the labor market despite the overall decline in sentiment. Matthew Hassan, chief economist at Westpac, stated that renewed concerns about the path of interest rates are fueling broader fears about economic prospects, warning that persistent inflationary pressures may lead the Reserve Bank of Australia to keep interest rates unchanged for longer than expected.

In terms of markets, the S&P/ASX 200 index rose by 0.2% to close at 8,649 points, rebounding from losses in the previous session, supported by major banking and mining stocks. The banking sector recorded notable gains, despite the Reserve Bank of Australia's decision to maintain the interest rate and indicate that the easing cycle may be nearing its end.

Mining stocks also contributed to supporting the index, as preliminary data showed a slowdown in economic activity momentum, with the composite Purchasing Managers' Index falling to a seven-month low in December due to a slowdown in service sector growth, contrasted by a relative improvement in manufacturing activity.

These developments reflect a clear paradox between financial market performance and declining consumer confidence, highlighting the uncertainty dominating the economic landscape in Australia as the year comes to a close.