The mood among Australians soured in the past week against the backdrop of war, floods and rising COVID-19 cases in the closed-border state of Western Australia.
The weekly ANZ-Roy Morgan consumer confidence index dropped 2.6 per cent to 99.2 points, while inflation expectations surged to a new seven-year high of 5.3 per cent as petrol prices hit further record highs.
"Most of the decline took place during the latter part of the week as daily COVID cases breached 1000 in WA, massive storms battered the east coast and the invasion of Ukraine began," ANZ head of Australian economics David Plank said on Tuesday.
The 0.2 percentage point rise in consumer inflation expectations came as Australian Institute of Petroleum figures showed the national average for petrol prices struck another record high in the past week, rising a further 1.5 cents to 180.6 cents per litre.
This came in a week when global crude oil prices topped $US100 a barrel after Russia's invasion of Ukraine, suggesting Australian petrol prices will rise further.
The Reserve Bank of Australia will hold its monthly board meeting on Tuesday under the cloud of uncertainty caused by escalating hostilities in eastern Europe.
However, economists expect the invasion of Ukraine will have minimal impact on the Australian economy.
Commonwealth Bank head of Australian economics Gareth Aird expects higher energy prices, as a result of the conflict, to boost export revenues but there will be upward pressure on inflation from rising petrol prices.
While inflation is set to accelerate, and the unemployment rate remained at a 13-year low of 4.2 per cent in January - despite the impact of the Omicron variant - economists expect the RBA to leave the cash rate at a record low 0.1 per cent for some months yet.
Last week's economic data showed wages growth remained well short of the three per cent-plus level the RBA is looking for before lifting interest rates.
Meanwhile, Australia's manufacturing sector is growing again after the disruptions caused by the COVID-19 Omicron outbreak, and strong new orders suggest there is further expansion ahead.
The Australian Industry Group performance of manufacturing index rose by 4.8 points in February to 53.2 after a sharp decline in the December 2021-January 2022 period when Omicron was at its harshest.
An index reading above 50 points suggests the sector is expanding.
"Australia's manufacturing sector edged back into expansion during February following the sharp labour and supply chain disruptions of the December-January period," Ai Group chief executive Innes Willox said.
"Encouragingly, new orders were very strong and point to further strength over coming months."
The Australian Bureau of Statistics will release the final components of Wednesday's national accounts for the December quarter - the balance of payments and government finances.
At this stage economists see some upside risk to an expected three per cent expansion in December quarter economic growth, after Monday's data showed an unexpected increase in business inventories in the quarter.
Such strength comes after the economy contracted by 1.9 per cent in the September quarter due to the Delta strain lockdowns.