Consumers show less confidence

Rising interest rates and petrol prices, along with worsening unemployment combined to knock the confidence of consumers in the March quarter.

The housing market also experienced a slowdown which could have affected confidence among home owners.

The Westpac McDermott Miller consumer confidence index, published yesterday, was at 114.7 points, down 2.2 points on the December quarter reading of 116.9.

Otago remained unchanged on 104.4, but up from the 93.4 in March last year.

Southland fell sharply to 103 from 112.8 in December and Canterbury rose to 118 from 116.9.

Falling consumer confidence is thought to mean the Reserve Bank will not lift interest rates until at least June.

Westpac research economist Dominick Stephens said consumer confidence peaked at a four-year high of 120.3 in September last year but had slipped during the past six months.

"Still, consumer confidence remains in optimistic territory and is well above the long-run average.

At current levels, confidence is indicative of solid growth in consumer spending through the March quarter, although spending growth may not be as emphatic as it was at the tail end of last year."

The exchange rate was one factor that did remain favourable for consumers, he said.

The only question to register an improvement in the March quarter was whether now was a good time to buy a major household item.

No doubt, the improvement was due to the falling price of durable goods such as appliances and cars, which in turn was a consequence of the strong dollar, Mr Stephens said.

An additional question was included in the March quarter survey relating to proposed changes in the tax system.

Respondents were asked that if there were changes to the tax and benefit system during the next 12 months, would it have a positive or negative effect on their overall financial situation.

The results were evenly split with 33% expecting a positive effect, 34% expecting a negative effect and 22% saying they expected no effect, he said.

Respondents in the upper socioeconomic category were the most positive about the prospective tax changes.

The lower socioeconomic group was decidedly pessimistic.

People aged 50 and above were markedly more pessimistic than younger people.

The tax changes had not been formally announced but hints so far indicated that income tax would be lower, GST would be higher, the rules on property investment would be tightened and national superannuation would be increased.

Mr Stephens said the age and income split from the survey matched the assessment of how the hinted-at tax changes might affect different groups.

Lower income tax was a clear benefit to most people but more so for high income earners.

Some older people might find the GST hike had eroded the purchasing power of their savings, although a boost to national superannuation might ease some of the pain.

"Our assessment is that the tax changes will temper the rate of house price inflation, which is a boon to the young and a detriment to the old."

The slight drop in consumer confidence was widely anticipated given the more moderate tone of economic news recently and the data was not expected to be market-moving, he said.