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Consumer discretionary spending dives as RBA holds rates - ARA data shows costs in essential services rising

Posted by: [deleted]1248313515.919.7 on Tue, 06 May 2008 20:44:52

Peak retail industry body the Australian Retailers Association (ARA) welcomed the RBA’s decision not to raise the official cash rate today as consumer spending in furniture, audio visual and computing, and accessories has taken a substantial dive.

According to the ARA's Executive Director Richard Evans, the decision by the RBA to put a hold on rates acknowledges that the interest rate rises in 2007 and early 2008 have bitten hard on Australian consumer discretionary spending.

"Australian consumers are doing it tough - and so too are the retailers. Although there has been an increase in spending across the board (weighted average of the eight capital cities all groups March 2007/ March 2008 was up 4.2%), the most significant contributors were automotive fuel (+5.4%), pharmaceuticals (+13.1%), electricity (+6.0%), rents (+2.0%) and other financial services (+2.0). All of these categories are essential services and consumers have now been forced to rein in spending in other categories.

"From a retail perspective the most significant offsetting decreases were for furniture (-3.6%), audio, visual and computing equipment (-5.8%), and accessories (-5.3%).

"Today's decision by the RBA shows they have again responded to retailers and consumers and eased from their heavy handed approach to the economy allowing the market to correct it self. The concern we have is that these increases in essential services may in fact led into other inflationary pressures including a wage price spiral and a heavy demand on essential services," Evans said.

"From a social perspective, with this increase in demand, the cost of essential services will continue to rise and we can already see a change in consumer behaviour. There is increasing evidence of ‘drive offs" in petrol stations and more shoplifting of small essential items such as baby food and razors," Evans said.

A breakdown of capital cities consumer spending increases March 07/March 08 are as follows:

Sydney +3.9%, Melbourne +4.4%, Brisbane +4.8%, Adelaide +4.5%, Perth +4.3%, Darwin +3.8%

Darwin +3.9 and Canberra +4.6%.

Spending categories in more detail - Food + 5.2%, Alcohol and tobacco +3.8%, Clothing and footwear -0.5%, Housing +5.7%, Household contents and services -0.7%, Health +4.6%, Transportation +6.8%, Communications +0.1%, Recreation +1.4%, Education +4.3%, Financial and Insurance services+6.8%.

The increase in food was due to increases in take away and fast food prices (+5.6%), vegetables (+9.7%), milk (+11.6%) and bread (+9.0%).

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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