Australian consumer confidence took a significant hit in September, sliding closer to the deeply pessimistic zone, as rising fuel expenses and renewed concerns about potential interest rate hikes by the Reserve Bank of Australia weigh on households.

Westpac reported on Tuesday that its consumer sentiment gauge dropped by 5.2% to 84.4 points. Matthew Hassan, the bank's senior economist for Australian macro forecasting, noted that this decline brings sentiment back near the levels of extreme pessimism observed earlier this year.

The survey highlighted that cost-of-living pressures are intensifying once again, with a particularly sharp 9.2% plunge in the sub-index measuring "family finances compared to a year ago." Hassan pointed out that petrol prices at local pumps have climbed back above A$2 per litre for the first time since April, driven by higher global energy costs and the conclusion of a temporary halving of the fuel excise tax.

Approximately 64% of consumers now anticipate further increases in mortgage rates over the coming year, the survey found. This comes as the RBA faces mounting pressure to resume its tightening cycle, following stronger-than-expected inflation and GDP figures, just weeks ahead of its upcoming policy meeting.

The central bank has consistently emphasized the need to bring the economy back into balance. After raising borrowing costs three consecutive times between February and May to reach a cash rate of 4.35%, it has since held steady. Hassan explained that the surprisingly robust inflation data has intensified worries that the RBA will hike again in the coming months.

"This is weighing on consumers' expectations for their own financial situations and the broader economic outlook, and it may also be fueling concerns about continued weakness in the housing market," he said. The property sector is already in a downturn, exacerbated by the government's removal of tax incentives for property investors and the impact of earlier rate increases.

HSBC Holdings Plc revised its forecast for the peak-to-trough decline in property prices to 13%, up from a previous prediction of 8%. Meanwhile, real estate consultancy Cotality reported a 0.9% drop in its national home value index for August, marking the fifth consecutive monthly decline and bringing the cumulative fall to 3.6% since the March peak.

Hassan added that rate concerns are having a clear adverse effect on consumers with mortgages. Confidence within this group fell 14%, with an especially pronounced 18% decline in assessments of whether it's a good time to buy major household items, indicating that mortgage holders are tightening their spending plans.