Consumer confidence slumped in the past week following a spike in inflation to its highest level in two decades which has raised the risk of an imminent rise in interest rates.
The weekly ANZ-Roy Morgan consumer confidence index - a pointer to future household spending - tumbled six per cent, the biggest drop since mid-January when the COVID-19 Omicron variant surged.
"The strong inflation result of 5.1 per cent was likely the primary driver of the drop in confidence as it increases the prospect of interest rate hikes by the Reserve Bank in the near future," ANZ head of Australian economics David Plank said.
This was supported by confidence dropping 9.6 per cent among people "paying off their home loan", while for people who already own their home or are renting confidence dropped by 4.7 per cent and 4.2 per cent respectively.
Mr Plank noted confidence is now at its lowest level at the start of a monetary policy tightening cycle since the inflation targeting regime began in the early 1990s.
"This may see the RBA tighten more slowly than the market is pricing," he said.
Economists generally are convinced the RBA will lift the cash rate at Tuesday's monthly board meeting, which would be the first increase in more than a decade.
Financial markets are priced for the risk of a 0.15 per cent rise in the cash rate to 0.25 per cent, which is expected to be followed by increases of 0.25 per cent in subsequent months.
Warwick McKibbin, a professor of economics at the Australian National University and former RBA board member, believes there is a strong case for an interest rate rise now.
"We have definitely got a problem with inflation, potentially rising more significantly than previously expected," he told ABC radio.
Prof McKibbin sat on the board the last time the cash rate was increased during an election campaign in 2007 - a poll former Liberal prime minister John Howard went on to lose after campaigning on lower interest rates under his government.
The Morrison government is putting on a brave face after its campaign advertising boasted interest rates have been lower under the Liberals than Labor over the past 30 years.
"Australia's official cash rate has been sitting at 0.1 per cent for 18 months - that's the lowest ever level we have seen in Australia," Finance Minister Simon Birmingham told Sky News.
"There was always going to be some normalisation, particularly at a time where we are now facing huge international and global uncertainty."
Prime Minister Scott Morrison acknowledged that any movement in rates is going to put pressure on those repaying a mortgage.
"For an average mortgage, for a 25-point basis increase, what you're looking at there is just over 80 bucks a month," he told reporters in Melbourne.
"What I'm encouraged by is Australians have been aware of the pressures and that's why they have switched from variable mortgages to fixed-rate mortgages."
© AAP 2022