Ballooning inflation and rising interest rates have sent consumer confidence reeling, but the mood among low paid workers may get a lift after the Fair Work Commission awarded them a 5.2 per cent wage increase.
Two gauges of consumer confidence fell to multi-year lows in the wake of the Reserve Bank of Australia lifting the cash rate by a larger than expected 50 basis points last week.
RBA governor Philip Lowe in a rare television interview said decisive action was needed in the face of rising inflation, which he now expects could reach seven per cent by the end of this year compared to 5.1 per cent now.
"We'll do what's necessary to get inflation back to two to three per cent," Dr Lowe told ABC's 7.30 program on Tuesday.
Economists are expecting a further 50 basis point increase in the cash rate in July, which would raise it to 1.35 per cent.
The Westpac-Melbourne Institute survey for June released on Wednesday showed the consumer sentiment index fell 4.5 per cent to 86.4.
Westpac chief economist Bill Evans said in the 46-year history of the survey the index has only been lower five times - this included the COVID-19 pandemic, the global financial crisis and the recessions of the 1980s and 1990s.
The survey's weekly counterpart compiled by the ANZ and Roy Morgan also tumbled 7.6 per cent to 80.4 points, its lowest level since early April 2020.
ANZ head of Australian economics David Plank said the percentage of respondents who expect "good times" for the economy over the next five years dropped to 10 per cent - the lowest level on record.
The Fair Work Commission's minimum wage decision came at the top end of expectations and could see wages growth more generally accelerate to 3.25 per cent by early next year, compared to 2.4 per cent now.
"The risk of course is this decision today leads other workers to ask and negotiate higher wages, especially in the context of a tight labour market," Commonwealth Bank senior economist Belinda Allen said.
Business groups were far from happy with the decision that will see the minimum wage increased by $40 a week from July 1, while a 4.6 per cent rise will apply to modern award wages from the same date.
Ai Group chief executive Innes Willox said this will "add fuel to the inflation fire".
Such concerns came as global share markets remain gripped by fears the US economy could fall into recession if the Federal Reserve raises interest rates aggressively to combat its own inflation problem.
Markets are bracing for a rate rise as large as 75 basis points when the US central bank meets on Thursday, to combat a 40-year-high inflation rate of 8.6 per cent.
But Dr Lowe is confident the Australian economy will continue to grow strongly over the next six to 12 months.
"There is still a bounce back from all the COVID-19 restrictions, people are spending in a way they weren't able to do last year," he said.
Dr Lowe said there was a big backlog of construction work to be undertaken and the number of job vacancies is extraordinarily high.
"So people can be confident the jobs will be there, and in that environment people will keep spending," he said.
Prime Minister Anthony Albanese also does not believe Australia is heading toward a recession.
"Australia has a difficult time because there are difficult global circumstances," Mr Albanese told ABC Radio. "But we will work our way through it."
Australian Associated Press
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