Australian Consumer Sentiment Rises 9.1% on Fuel Drop

By Victoria Batchelor

Aug. 13 (Bloomberg) -- Australian consumer confidence jumped in August from a 16-year low as fuel prices fell, wages rose and the central bank signaled it may cut interest rates.

The sentiment index climbed 9.1 percent from July to 86.2 points, the biggest increase in almost two years, according to a Westpac Banking Corp. and Melbourne Institute survey released today in Sydney. It is the sixth straight reading of less than 100, showing pessimists still outnumber optimists.

Central bank Governor Glenn Stevens said last week he has more room to reduce interest rates because the economy is slowing and will ease inflation pressures. Lower borrowing costs will provide respite to consumers, who have been paying more for food, mortgages and fuel, and may stoke spending at retailers including Harvey Norman Holdings Ltd. and David Jones Ltd.

``Consumers are feeling relief from a decline in fuel prices and strong indications from the Reserve Bank that rate cuts are ahead,'' said Matthew Hassan, an economist at Westpac in Sydney. ``We are very likely to see an interest-rate reduction in September, providing a clear boost to household finances.''

The Australian dollar rose to 86.75 U.S. cents at 11:58 a.m. in Sydney from 86.69 cents before the report was released. The two-year government bond yield fell 1 basis point, or 0.01 percentage point, to 5.78 percent. The S&P/ASX 200 Index of stocks fell 2.2 percent to 4,943.50, in line with declines in share markets globally.

Gasoline Falls

Westpac's survey of 1,200 consumers was conducted from Aug. 4 to 10.

Since the previous month's poll, the cost of gasoline in Australia has dropped 8 percent, according to Westpac figures.

Australia's central bank said two days ago it will have more scope to reduce interest rates because a ``significant moderation'' in domestic demand will slow inflation, damp economic growth and drive up unemployment.

Stevens and his board will cut the overnight cash rate target by at least 25 basis points to 7 percent when they meet on Sept. 2, according to 18 of 25 economists surveyed by Bloomberg last week. Five predict a 50 basis point reduction and seven expect no change.

Lower borrowing costs and a jump in wages may stoke a pickup in retail sales, which slumped 1 percent in June. That was the biggest monthly drop in six years as consumers curbed spending on clothes and household goods.

Wages Rise

Harvey Norman, Australia's biggest furniture and electronics retailer, said last month that annual sales growth slowed to 8.7 percent as demand for furniture and household appliances eased.

Australian wages growth unexpectedly accelerated in the second quarter at the fastest pace in 11 years, rising 1.2 percent for an annual gain of 4.2 percent, a report showed today. The median estimate in a Bloomberg survey of 24 economists was for a 1 percent gain.

``It is higher than expected, but the annual rate is showing that wages are still under control,'' said John Honan, chief economist at Ausbil Dexia Ltd. in Sydney. ``It's not going to concern the central bank.''

An index measuring the whether now is a good time to buy a household item advanced 4.1 percent and the outlook for family finances over the next 12 months increased 16.9 percent, today's report showed.

To contact the reporter on this story: Victoria Batchelor in Sydney at vbatchelor@bloomberg.net.