(Updates with details on other sub-components of the index,...

(Updates with details on other sub-components of the index, Westpac chief economist quotes in paras 3-12)

SYDNEY, May 17 (Reuters) - A measure of Australian consumer sentiment fell in May as confidence in housing and property prices deteriorated sharply while worries of worsening family finances grew after the federal budget, a survey showed on Wednesday.

The survey of 1,200 people by the Melbourne Institute and Westpac Bank (WBC) found consumer sentiment fell 1.1 percent in May, from April when it had dripped 0.7 percent.

That left the index at 98.0, down 5 percent on year and below the 100 level where the number of optimists matches pessimists.

"The disappointment for the government will be that despite its high expectations and its focus on spending, consumer, sentiment remains stuck below the significant 100 level," said Westpac Chief Economist Bill Evans.

The weak result could also dent the Reserve Bank of Australia's (RBA) confidence that core inflation would pick up by early 2018 on expectations of broader economic growth gathering momentum.

"With a flat response to the Budget, respondents remaining concerned about their finances and no signs of any improvement in wages prospects, the risks of weak household spending feeding back into employment and investment will remain a concern for policymakers," Evans said.

The Australian government unveiled an economic blueprint last week in which it pledged to deliver a small budget surplus in 2020/21 with a focus on spending on infrastructure, education and health.

It also announced measures to boost the supply of homes and tightened restrictions on foreign property investors intending to temper soaring property prices in Australia's major cities.

Still, confidence in housing was jarred in May with the 'Time to buy a dwelling' measure falling 6.5 percent in May to 90.0. Apart from one reading in 2010 this is the lowest reading since 2008 when house prices were falling amid rising interest rates.

The measure of family finances compared to a year ago slipped 4.6 percent, while that for family finances over the next 12 months skidded 5 percent lower.

Sentiment on the economy was subdued too. Expectations for the economic outlook over the next 12 months fell 5.7 percent, and the assessment of economic conditions for the next five years dropped 3.4 percent.