Australian consumer sentiment has fallen to its lowest level in four years, a closely watched survey showed on Tuesday, as rising interest rates added to cost-of-living pressures and soured households' view of the economy.

The Westpac-Melbourne Institute index of consumer sentiment fell 2.7% to 78.2 in November, its third monthly decline in a row after falls of 4.7% in October and 5.2% in September. The index is down almost 25% from a year earlier, with pessimists outnumbering optimists by a wide margin. A reading below 100 means pessimists outnumber optimists.

Rate rises weigh on households

The survey was taken as the Reserve Bank of Australia raised interest rates for the fifth time this year, taking its policy rate to an 18-year high of 4.85% as it tries to bring inflation under control.

Matthew Hassan, Westpac's head of Australian macro-forecasting, said consumers remained deeply pessimistic. "Australian consumers remain deeply pessimistic, sentiment continuing to plumb extreme lows," he said. "Consumers are bracing for more rate rises."

The impact of the latest rate rise was clear in the survey's detail. The measure of the economic outlook over the next 12 months fell 10.2%, while the gauge of whether it is a good time to buy a major household item dropped 3.7%.

Three months of decline

November's fall extends a run of weak readings. Sentiment dropped 5.2% in September and 4.7% in October, and the index has now fallen for three months in a row. Economists watch the survey closely because weak confidence often feeds through into weaker spending, which in turn shapes how the central bank judges the economy.

The Reserve Bank will be watching the same figures as it weighs its next move. The survey is one of the indicators the bank considers when deciding whether to raise interest rates further, and the latest reading suggests households are feeling the cumulative weight of this year's five increases.

The survey, run each month by Westpac and the Melbourne Institute, asks households about their own finances, the outlook for the economy and whether it is a good time to buy major household items. Its main index has now fallen for three months in a row, and the November reading of 78.2 is the weakest since late 2022.

For now, the message from the survey is blunt: after a year in which borrowing costs climbed to their highest in 18 years, Australian households are more gloomy about their finances and the economy than at any point in four years.