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ARA Cautions Against Interest Rate Rise - CPI Figures Announced Today

Peak retail industry body the Australian Retailers Association (ARA) cautioned against further interest rate rises with the today’s Consumer Price Index (CPI) figures showing an annual increase on the upper limit of the Reserve Bank of Australia’s (RBA) band for inflation.

According to ARA Executive Director Richard Evans, despite the seemingly strong growth, the RBA should not overact with an interest rate rise.

“The CPI for the December 2007 quarter showed the weighted average for the eight capital cities as being a 3.0% increase over the December quarter 2007. But this seemingly strong growth doesn’t mean it’s time for an interest rate rise.

“Right now consumer confidence is on the wane due to recent bank interest rate increases, and it may be a more miserable story in February when the effects of the November interest rate rise are expected to affect demand,” Evans said.

"Now is not the time to be placing a halt to retail demand when clearly the inflationary indicators are restricted to petrol, housing and education."

Evans pointed to the low year on year growth in food as an indicator that after a good season food production prices have weakened with demand. He also pointed to clothing and footwear as signs the market may be adjusting itself in consumer items without the need for interest rate intervention.

In transportation the most significant rise was due to petrol prices which showed a 14.3% increase for the twelve month and the impact of the drought on grain growing has seen a significant increase in breads and cereals.

“With issues including drought and petrol prices already putting pressure on consumer confidence, another interest rate rise would no doubt dampen consumer spending.

“What retailers want is sustainability and if the RBA wants to dampen spending then this is not the time to do it with the uncertainty in the financial markets and with the United States moving to lower rates. We ask the RBA to reflect upon those market price influences already strongly affecting consumer outlooks before placing the heavy hand of a rate rise upon most Australian consumers.

"The great irony of these figures is that just one day after the Government suggested inflation in food items was out of control and thus announced an ACCC inquiry, we see food is not contributing to inflation. Rather it is petrol, drought and housing affecting the figures,” Evans said.

For over 104 years, the Australian Retailers Association (ARA) has been the peak industry body in Australia's $292 billion retail sector which employs over 1.2 million people. As an incorporated employer body under the Workplace Relations Act and with a range of member services including business consulting, policy development, advocacy and education, the ARA promotes and protects over 5000 independent and national retailers throughout Australia. Visit www.retail.org.au or call 1300 368 041.

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