The Westpac-Melbourne Institute Consumer Sentiment Index was up just 0.9% overall through January to reach 92.9, tracking a choppy path between October 2025 and the month, jumping 12.8% initially before giving almost all of the gains back through year-end amid concerns around rising inflation and rate hikes, Westpac said in a report on Monday.

The Reserve Bank of Australia (RBA) delivered a 25 basis point interest rate hike at its February meeting. The rate hike would not have come as a big surprise for Australian consumers.

The Westpac Risk Aversion Index rose 4.4 points from 44.7 in September 2025 to 49.1 in December 2025. Mortgage Rate Expectations Index spiked a further 50% since October 2025. The Westpac-Melbourne Institute Unemployment Expectations Index rose 1.5% over the three months to January.

The homebuyer sentiment cooled in response to the shifting interest rates, with the "time to buy a dwelling" index falling 7.1% over the three months to January. The "time to buy a major item" index rose 1.9% over the three months to January. The Westpac-Melbourne Institute Consumer House Price Expectations Index fell 2.6% over the three months to January.

The bank forecast that the RBA will make one follow-up 25-basis-point increase at its May meeting before pausing through the rest of 2026 and most of 2027. Gross domestic product (GDP) growth is now expected to come in at 2.4% for 2025, up from 2.1% previously, with growth holding at 2.5% in 2026.