Consumer confidence has soared to three year highs, propelled by record low interest rates and the election of a coalition government.

The Westpac Melbourne Institute Index of Consumer Sentiment, released on Wednesday, increased by 4.7 per cent in September to 110.6 – its highest point since December 2010.

Westpac chief economist, Bill Evans, said although the survey was mostly conducted before Saturday’s election, between September 2 and 8, it was clear the election outcome played a big part in the confidence boost.

Record low interest rates also contributed, he said.

“This is a very strong result,” Evans said.

“It was really only the last day of the survey that covered the actual election result although media coverage pointed strongly to a coalition victory throughout the survey period.

“Responses collected on the last day of the survey showed a further marked lift in sentiment although the sample size is too small for this to be a statistically valid result.

“I think it is reasonable to conclude that the election result played an important if not leading role in this strong boost to consumer sentiment.

“The result is comparable with the boost to the index in March 1996 when the coalition was returned after 13 years in opposition.”

Evans said components of the index showed the confidence boost was driven by optimism about the economy, rather than how households feel about their own finances.

He said aspects of the survey would give the Reserve Bank encouragement that rate cuts, complemented by the boost from the election, “make policy settings about right”.

But soft labour market, business investment and consumer spending conditions meant the RBA would need more time to assess the underlying strength of the economy, he said.

AAP