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RBA Weighs Down Consumers with Further Rise - ARA predicts small retailers to be hit hard

Peak retail industry body the ARA expressed concern for Australia’s smaller retailers and chains at the RBA’s action to raise the official cash rate today by 25 basis points to 7.25 percent.

After publicly stating last month that post-Christmas sales estimates show consumers are already restricting their spend, the Australian Retailers Association (ARA) believes the today’s interest rate rise will hit small retailers and chain stores hard on two fronts.

ARA’s Executive Director Richard Evans said the retail sector is already feeling the pinch with a reduction in demand and this latest rate rise will be felt almost immediately in daily takings for smaller retailers.

“Add this to the increased cost in finance funding, and small business all over Australia will now suffer. We expect the November rate rise to have an impact now and today’s rate rise to have an impact in four months time. We are moving beyond the peak of growth and we are expecting growth but on a reduced scale this year (5.5% vs 7.6% last year),” Evans said.

Last month, the ARA’s internal consumer spending modelling indicated the 2007/2008 post-Christmas sales period was softer than originally forecast, confirming the Reserve Bank of Australia (RBA) acted prematurely by raising rates in February.

“Australian consumers began restricting their spending from New Year’s Day onwards starting a downturn that will last at least two more quarters. Our modelling is very accurate – as proven during the peak Christmas buying period – so maybe the RBA should needs to rethink its high interest rate strategy,” Evans said.

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

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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