Australians happier and spending

Colin Brinsden, AAP Economics Correspondent
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Australians happier and spending

If Australians are worried about talk of future interest rate increases they're not showing it just yet.

New figures show consumer confidence has strengthened while retail spending saw another solid month of growth, coinciding with the recent bout of upbeat employment numbers which has taken the jobless rate to a four-year low of 5.5 per cent.

The Reserve Bank kept its official interest rate at 1.5 per cent at Tuesday's monthly board meeting as widely expected by economists.

The cash rate has been at this record low since August 2016.

Central bank governor Philip Lowe noted further increases in US interest rates are expected and there is no longer an expectation of additional monetary easing in other major economies.

For Australia the board judged holding the cash rate steady would be consistent with sustainable economic growth and achieving the 2-3 per cent inflation target over time.

"The Australian economy is expected to strengthen gradually," Dr Lowe said in a statement.

"Wage growth remains low, however, and this is likely to continue for a while yet."

Former Reserve Bank board member, John Edwards, said last week the official cash rate could rise eight times over the next two years, based on current economic forecasts.

But other economists and financial market participants expect future increases will be much more restrained.

At this stage, financial markets are predicting a rate rise towards the end of next year.

Such debate has failed to dent confidence.

The latest weekly ANZ-Roy Morgan consumer sentiment index jumped 2.4 per cent, bringing it into line with its long-run average.

"The rise in confidence likely reflects ongoing strength in the labour market and appears to have outweighed consumers' concerns about the rise in retail electricity prices," ANZ head of Australian economics David Plank said.

The more buoyant mood was complimented by a 0.6 per cent rise in retail spending in May, building on the one per cent jump recorded in the previous month.

Australian Retailers Association head Russell Zimmerman said the cold winter snap appears to be driving consumers to the shops.

"As we enter the colder months we will see retail growth remain strong, giving retailers breathing room in the tough trading environment," Mr Zimmerman said.

The recent positive results followed six months of subdued retail activity, although economists question whether the present strength is sustainable.

"We think it's a little premature to say that the retail trade sector is on a solid recovery path given wages growth is still very soft," Commonwealth Bank Gareth Aird said.

However, it does point towards a healthier household spending result for the June quarter national accounts when they are released in September.