Australia's Westpac Oct consumer index up 3.9 pct vs Sept

The Westpac Melbourne Institute Index of Consumer Sentiment rose 3.9 pct month-on-month in October to 105.2 points, Westpac said. Westpac said this month's improvement in sentiment follows a solid 12.5 pct rise in September, showing that as with the May interest rate hike, it appears that the effects of the August rate hike are starting to wear off for the consumer. It said the index is now only 3.0 pct below the average level of the index in the 12 months before the Reserve Bank of Australia raising interest rates by 25 basis points to 5.75 pct in May, while the index is now only two pct below the level prior to the 16.2 pct fall in August when the RBA again raised official interest rates by 25 basis points. Westpac's chief economist Bill Evans said there are two key reasons behind the solid 3.9 pct jump in the sentiment index, namely the drop in gasoline prices and consumer becoming used to higher interest rates. "Petrol (gasoline) prices have fallen by eight pct since the last survey. The 15 pct fall in petrol prices from the peak in late July has certainly calmed consumers and offset some of the impact of higher interest rates," he said. "Consumers are becoming used to the somewhat higher but by still broadly neutral level of interest rates." Evans said the solid state of the labor market continues to provide a boost to consumer sentiment. Meanwhile, the chief economist said markets are currently uncertain about the outcome of the next RBA meeting on Nov 7, with the the balance of probabilities favoring no move. Evans said his firm continues to expect a 25 basis point rate increase in November. He said the September quarter inflation data will likely show that the RBA's measure of annual underlying inflation is running above the top of its target zone, while today's consumer sentiment index will give the RBA little comfort that inflation pressures are likely to ease significantly without a further rate hike. The RBA targets a headline rate in the 2-3 pct range on average over an economic cycle. Economists expect the September quarter inflation data due for release on Oct 25 to be the key for monetary policy ahead in Australia.