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ARA applauds rate rise hold as consumer demand dries up - Reserve Bank No ‘April Fools’

Peak retail industry body the ARA applauded the Reserve Bank of Australia’s (RBA) decision not to raise the official cash rate today as anecdotal evidence shows consumer demand dried up three weeks ago (as predicted by the ARA last November).

After publicly stating last month that post-Christmas sales estimates show consumers are already restricting their spend, the latest intelligence from the Australian Retailers Association (ARA) shows trading is currently at its poorest for the past five years.

According to the ARA’s Executive Director Richard Evans, the decision by the RBA to not raise interest rates today acknowledges Australian consumers’ ability to rein in their spend as times tighten.

“The retail sector is the barometer of the economy and this tightening in consumer spending is being reflected in supermarket spending with demand for home brands and private labels increasing substantially and Aldi reporting substantial increase in foot traffic.

“The current trend is likely to see retail spend coming down from the year-on-year figure of 8% which ended December 2007 to approximately 5.5% for the year-on-year ending the March quarter 2008. We predict this cycle will continue to fall to around 4.5% by the end of the September quarter 2008,” Evans said.

“Some categories will go below 4.5% but the overall retail spend will be held up by the food sector which contributes 40% to retail sales. In previous cycles when the retail sector spiked up to the extent in the July -December 2007 period of 1.5% over year-on-year growth, the fall is usually more rapid. This is the case at present especially given the extra RBA and bank interest rate increases last month.

“This drop in consumer confidence is also reflected in the April 2008 SAI Global / ACCI Survey of Investor Confidence showing business expectations being significantly revised down. The survey shows that interest rates and ongoing financial sector turmoil has significantly dented business confidence. Adding to business concerns are costs from wages and input prices which have continued to grow strongly, though price growth is expected to moderate,” Evans said.

“Today’s decision by the RBA shows they have responded to retailers and eased from their heavy handed approach to the economy allowing the market to correct it self,” 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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