Why your morning coffee is more expensive

SPEAKER_1 (0:00)

ABC Listen, podcasts, radio, news, music, and more.

Sam Hawley (0:09)

Hi, it's Sam Hawley from ABC News Daily, the podcast that brings you one big story affecting your world each weekday in just 15 minutes.

SPEAKER_3 (0:19)

Everybody is on the same page that violence against women and children is wrong. Now, when you have bipartisanship, it politically takes the heat out of an issue. It sort of falls by the wayside, how the political issues take over and also in the media cycle.

Sam Hawley (0:33)

Join me for ABC News Daily. Find us on ABC Listen.

Carrington Clarke (0:38)

Well, it's no real surprise that people are feeling bad about the economy and their finances. But the latest look into consumer sentiment from the Westpac-Melbourne Institute's index reveals Australians are experiencing what the bank describes as a cost of living nightmare. Meanwhile, you may have noticed the price of your morning cup of coffee has gone up, as small businesses raise prices in the wake of the RBA's surcharge ban. Welcome to ABC Business Daily.

Lin Lin (1:09)

And I'm ABC Business Reporter Lin Lin.

Carrington Clarke (1:12)

Lin, thank you so much for joining us. We've both been poring through this latest Westpac-Melbourne Institute Consumer Sentiment Survey.

There's a lot of data there that you can lose yourself in. Let's start with kind of the big picture headlines, which is a further deterioration in how people feel about the economy and about their own finances. We're kind of back to where we were in April, and that was already one of the worst kind of periods in this survey's history. People seem to be concerned not only about rising fuel costs, but also the likelihood of further interest rate hikes. What struck you as most interesting?

Lin Lin (1:52)

It's a very gloomy and downbeat picture, but also not altogether surprising given that we have interest rates now at a 15-year high for interest rates this year. As you say, petrol prices are averaging around $2.30 a litre. We are dealing with inflation that according to the last read, accelerated at least at that headline level, and even the underlying is pretty stubborn as well.

Also at a time, Carrington, we're seeing house prices fall, and we know that a lot of wealth in Australia is tied to housing. So if you're seeing that as well, that's probably not going to make you feel so good or want to go out and spend too much.

Carrington Clarke (2:33)

When we zoom back, on one hand, obviously no one wants to hear that people are feeling bad about their own finances or about the economy.

That inherently sounds like a bad state of affairs. But actually, if you're the reserve bank and you're reading this, maybe you're thinking a little bit of pessimistic outlook is actually helpful to their ends, because that means people are less likely, as this survey shows, to go out and spend money on big-ticket purchases. Maybe there's less demand in the economy more generally, and that's what they want. The reserve bank doesn't want to throw Australia into a recession, but they would like people to spend a little bit less. Absolutely. To bring down inflation, and that is kind of what's coming through in this survey. And the fact that people think that it is likely we will see further interest rate hikes, basically does some of the work of what a further interest rate hike would do anyway. And so maybe the reserve bank, reading this, is pretty happy about it.

But I was also interested that the concern about what's happening in the unemployment situation, what's happening in the jobs market, what's happening with unemployment, potentially is now starting to be top of mind for some people. And that potentially worried about their own job losses, particularly in construction, hospitality, in transport. And again, you can kind of pick apart some of those things. But because we're seeing the price falls in housing, there are concerns about what the flow and effect will be to construction. If we see projects not getting up and running, obviously a very high-profile collapse of a construction company here in Sydney that you've been following very closely in Bethlehem, that people read those headlines. Maybe if they're in the construction industry, they can't start to be concerned about what that might mean for their job in the future.

Lin Lin (4:24)

Absolutely. And I was speaking with Cameron Kusher, who's an independent economist. Earlier this week, we were doing a story about what we're seeing in terms of the auction clearance rates as well being at pretty low levels. And he made the point to me that what he is watching is the flow on impacts of falling house prices on the broader construction and real estate economy. So we're talking about mortgage brokers, conveyances, the people that might come and style the apartment when you want to sell it, and all down the chain, buyers agents, real estate agents, etc.