The Westpac Melbourne Institute Index of Consumer Sentiment dipped one per cent in June, which represents a consolidation of gains made in May.

The Index fell from 103.2 in May to 102.2 in June, after an 8.5 per cent surge in May.

Westpac Senior Economist, Matthew Hassan, said the small decline in June mostly represented a consolidation at the improved levels.

“(May’s) surprise rate cut from the RBA was the main catalyst behind May’s rally and although confidence has slipped back a touch in June this is a fairly common pattern following an interest rate-driven bounce,” Mr Hassan said.

“At 102.2 the Index is still in slightly ‘positive’ territory overall – recall that readings above 100 indicate optimists outnumber pessimists.”

Responses to additional questions on ‘news recall’ point to a somewhat calmer backdrop compared to March, although the majority of consumers still assessed news as being unfavourable. The highest recall levels were for news on ‘economic conditions’ (27.8%) and ‘Budget & tax’ (25%), but both were notably lower than in previous quarters. Unsurprisingly there was higher recall for news on ‘interest rates’ (16.5%), with the news on this topic viewed less negatively than in the previous four quarters.

“Consumers’ assessments of labour market conditions also consolidated on recent improvements,” Mr Hassan said.

“The Westpac Melbourne Institute Index of Unemployment Expectations declined 0.1% from 136.3 in May to 136.2 in June. This Index measures respondents’ assessments of the outlook for the unemployment rate, so lower reads indicate improved confidence in the employment outlook. The Index has fallen 7.5% over the last three months and is now down 10.9% on levels a year ago but is still 4.9% above its long run average; assessments have shown a steady improvement but are still more negative than usual.

“The component detail behind the headline sentiment index showed firmer reads on ‘family finances’, but a softening in expectations for the economy. Most notably, the sub-index tracking respondents’ assessments of ‘family finances compared to a year ago’ – a component the RBA has emphasised as an indicator of demand – increased 4.3%. The sub-indexes tracking the one- and five-year outlook declined 3.8% and 5.2% respectively, with falls following particularly strong gains in May, of 13.2% and 14.8% respectively. The ‘time to buy a major household item’ sub-index was unchanged.

The Reserve Bank Board next meets on August 2, while the June quarter inflation report was due out on July 27.

“It is our assessment that the information in this report will confirm to the Board that another cut is indeed necessary”, Mr Hassan said.