Gloomy start to 2026 as Australian consumers pessimistic over deteriorating job prospects and RBA rate hikes

Consumers have started the new year in a gloomy mood amid mounting concerns about job insecurity and whether the Reserve Bank will lift interest rates in the coming months.

A new Westpac-Melbourne Institute survey on Tuesday showed sentiment had moved further into pessimistic territory in January, with its index dropping 1.7 per cent to 92.9 from December’s 94.5. An index above 100 means there are more optimists than pessimists.

Westpac head of Australian macro-forecasting Matthew Hassan said while confidence was still well above the extreme lows recorded during the protracted cost-of-living crisis between 2022 to 2024, consumers were becoming more concerned about what 2026 may bring for their finances and the wider economy.

The culprit continues to be a sharp turn in interest rate expectations, Mr Hassan said.

Nearly two thirds of consumers now expect mortgage rates to move higher over the next 12 months, more than double the number in September.

The RBA has kept the cash rate at 3.6 per cent since August and has recently highlighted concerns about lingering inflation pressures at a time when the job market remains tight.

RBA deputy governor Andrew Hauser last week strongly hinted the next move in the cash rate was more likely a hike than a cut, despite inflation moderating to 3.4 per cent in the year to November.

The central bank next meets on February 2-3.

Mr Hassan also pointed out a deteriorating outlook for job prospects, with more people expecting the jobless rate to rise this year.

CreditorWatch chief economist Ivan Colhoun said moderating inflation had done nothing to lower cost of living, which has been the dominant factor restraining consumers’ optimism.

“Low unemployment however has been an important offset, without which sentiment would be far more pessimistic and credit conditions considerably more challenging,” he said.

The Westpac survey came the same day Commonwealth Bank said Australia’s labour market was “showing its staying power”, with wages holding firm and jobs growth continuing in December.

Western Australia continues to lead the nation for wages, up 3.6 per cent in the year to December, despite the State seeing slower growth than the previous month.

The ACT matched WA’s pace, while Tasmania and South Australia followed closely at 3.4 per cent.

NSW and Queensland both recorded 3.2 per cent, with Victoria slightly lower at 3 per cent.

The Northern Territory saw the slowest wage growth at just 2.5 per cent, highlighting ongoing regional differences across the country.

Employment growth also moderated, with an estimated 23,000 jobs added in December — a slight decrease from November, but broadly in line with previous months.

The unemployment rate remains at 4.3 per cent, reflecting a labour market that is still on the tighter side.