The Westpac–Melbourne Institute Index of Consumer Sentiment rose by 5.4 per cent in August from 113.1 in July to 119.2 in August.
Westpac's chief economist, Bill Evans, said it was a very strong result after tumbling by 15 per cent in the wake of three consecutive rate hikes in March, April and May.
“The index has recovered by 17 per cent in the last two months. It is now back to around the level it reached at the beginning of this year and the level we saw prior to the beginning of the rate hike cycle in September last year.
“There were many reasons to expect the index to rise in August although a 5.4 per cent increase following the 11.1 per cent increase last month is much larger than we expected. Clearly the most important factor was the decision by the Reserve Bank to keep its overnight cash rate steady in August."
Uncertainty over the election result, which may have contributed to a surprise fall in business confidence, does not appear to be affecting households.
“Most notably, consumers’ opinions on whether now is a good time to buy major household items posted a solid 3.5 per cent rise with this component index now at its highest level since July 2007. This bodes well for retailers as we head into the Christmas sales season,” said Evans.