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RBA Puts Heavy Hand on Consumers - ARA - Retailers cautious about future with new rate rise

Peak retail industry body the Australian Retailers Association (ARA) today expressed concern at the Reserve Bank of Australia’s heavy-handed action to raise the official cash rate by 25 basis points to 7.0 percent.

After publicly stating last month that the economy had yet to feel the effects of the November interest rate rise, the ARA believes there are other things the RBA and the Government can do to help rein-in inflationary pressures.

ARA’s Executive Director Richard Evans said that February is traditionally the tightest month for cash flows.
“February brings the triple cash drains of Christmas credit card debt due, BAS statements to be filled and paid and back-to-school costs. This rate rise will only put added pressure on familles with mortgages and small businesses.

“With retailers just coming off the peak of trading demand which happened to fall during the Christmas/Boxing Day period, they are now experiencing the cyclical downturn. For smaller retailers, this rate rise will be felt almost immediately in daily takings.

“There is evidence there is already a tightening in some categories of discretionary spending. With petrol prices consistently over $1.40 per litre and added cost pressures from drought, floods and rising house prices, the RBA’s decision is penalising those who are already highly geared,” Evans said.

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 this need for interest rate intervention.

“The Government is already looking using fiscal policy to put downward pressure on interest rates. Maybe the Government should also look at methods to increase productivity.

“Retailers want sustainability – not peaks and troughs in spending. And this rate rise is only going to make February 2008 even tougher on consumers. Retailers love their cash registers ringing loud and often.

However, we do caution consumers to be realistic when it comes to spending and not to extend too far on credit,” 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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