Middle East conflict, inflation continues to weigh on confidence

Although consumer confidence has increased slightly according to ANZ's index, weaker personal finance and the economic outlook continue to halt confidence.

The ANZ-Roy Morgan Australian Consumer Confidence index rose just 0.3 points to 75.6 in the week between July 13 and 19, lifting the four-week average by 0.7 points to 75.4.

Meanwhile, weekly inflation expectations ticked up 0.1% to 5.8%, with the four-week moving average remained unchanged at 5.6%.

The index also displayed a higher confidence on longer-term economy over the next five years (+0.8 points), compared to short-term economic confidence, which declined 1.6 points.

However, consumers are more confident about the current financial conditions, as future financial conditions have fallen 2.1 points.

Finally, the time to buy a major household item subindex gained 3.8 points.

Observing the trend, ANZ economist Sophia Angala said the growth in consumer confidence was slightly affected by ongoing conflicts in the Middle East and untamed inflation.

"ANZ-Roy Morgan Australian Consumer Confidence rose just 0.3 points last week. A jump in the 'time to buy a major household item' subindex was largely offset by weaker confidence in personal finances and the economic outlook," Angala said.

"The re-escalation of conflict in the Middle East last week likely weighed on confidence and partly contributed to the tick up in weekly inflation expectations."

Angala also remains cautious with the development around interest rate, highlighting that the Reserve Bank of Australia (RBA) might place a hike in the upcoming meeting to tame further inflation.

"While our base case remains for the cash rate to stay at 4.35% until H2 2027, we do not rule out the risk of further inflationary pressures to push the RBA to increase the cash rate in November, assuming the monetary policy board leaves the cash rate unchanged at its August meeting," Angala said.