Consumer confidence falls in October as consumers hold off buying big ticket items

A drop in consumer confidence in October could mean retail spending is likely to stay subdued in coming months, ANZ chief economist Cameron Bagrie said.

A flat retail sector, hit by the October 1 GST hike, is expected by economists to give the Reserve Bank room to keep the Official Cash Rate at 3% until March next year as households restrain themselves from spending on big ticket items.

The ANZ-Roy Morgan consumer confidence index fell three points to 113.6 in October, pushed down by its 'current conditions' component which fell to its lowest point since August 2009.

Despite this, more consumers are expecting to be better off in a year's time, with a net 31% of respondents saying they expected their families to be better off financially this time next year, from net 28% in September.

"Underpinning the drop in confidence was a 25 point plummet in the question regarding whether it is a good time to buy a major household appliance," Bagrie said.

"A net 7 percent believe it a bad time to buy a major household item. It is hard to gauge how much of this fall reflected the rise in GST at the start of the month, but clearly such a large fall suggests the GST rise has been influential," he said.

"However, the decline in current conditions does not bode well for immediate appetites to spend regardless. We note that the question in regard to whether it was a good time to buy a major household item did not blip up notably pre-GST (but rather it trended up over months prior), and this leaves us suspecting that the post-GST marked decline reflects wider forces in addition to the GST rise."

A net 9% of respondents said they felt worse off now than a year ago, up from net 12% in September, Bagrie said.

A new question was introduced to the survey in October, asking respondents at what rate they expected house prices to grow (or decline) on average over the next two years.

"If the current perception proves transitory in nature, and housing were to return to expectations of old (i.e. gains in excess of income), this could be one factor forcing the RBNZ to raise interest rates," Bagrie said. 

"At present, consumers' perception regarding house price gains over the coming years are cautious. House prices are expected to rise by 1.6 percent per year," he said.

"The impact of expected limited house price gains means that discretionary spending will need to be underpinned from income generation instead of wealth gains as has been the trend over the past two decades."

(Updates with chart)