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Consumer sentiment increased 8.1 per cent in August, but still remains incredibly weak, new data has revealed.

According to the latest Westpac Melbourne Institute Index, consumer sentiment rose from 89.6 to 96.9 in September.

Westpac's chief economist Bill Evans said this was a surprisingly strong result.

“We think it emphasises just how important interest rates are to households. Recall that since early May the Reserve Bank has been threatening to raise interest rates. However, as a result of the escalating turmoil in the global economy and evidence of a slowdown in the domestic economy the Bank is no longer threatening to raise interest rates,” he said.

“Concrete evidence of the improved outlook for interest rates came shortly after the August survey when the major banks actually lowered their fixed rate mortgage rates. While possibly coming as a surprise this action would have comforted anxious households.”

But while the rise in consumer sentiment is a pleasant surprise, RFi director Alan Shields told The Adviser that overall, sentiment still remains incredibly weak.

“Research conducted by RFi shows people are more concerned about the state of the domestic economy and the state of the global economy now than they were during the depths of the GFC,” he said.

Source: The Adviser 15th September 2011 - www.theadviser.com.au