Consumer inflation expectations have fallen to their lowest levels in more than two years, but consumers remain deeply pessimistic about their finances.

The ANZ-Roy Morgan Consumer Confidence Index rose one point in September on the month to 86.4, though the number of pessimists continued to outweigh optimists.

Inflation expectations fell to 4.2 percent, the lowest since March 2021, however, a net 32 percent of respondents thought it was a bad time to buy a major household item, consistent with ongoing softness in retail spending.

ANZ senior economist Miles Workman said consumers picked the recent rise in inflation earlier than economists, so the sentiment was worth noting.

"One of the many milestones along the road to eventual rate cuts will be a significant reduction in inflation expectations, and September brought some good news on that front: inflation expectations fell 0.4 percentage points to 4.2 percent.

"That's somewhat surprising given recent strength in petrol prices, but for now it's good news nonetheless."

Also of note was a slight uptick in optimism among mortgage holders, Workman said.

"Confidence lifted a little further in September for those paying down mortgages and so too did house price expectations (probably not a coincidence)."

Another surprise was whether consumers felt their financial situation had improved within the past year, Workman said.

"Those paying off a mortgage responded more optimistically in September than those without a mortgage. That's a surprising result, given fixed mortgage rates continue to edge higher."

He said the reported turnaround in the housing market may have been a driver.

"It's interesting that even as mortgage-holders roll onto higher rates, it's not a case of things feeling ever worse for households with debt."