Rate hike hits retailers at worst possible time

The Australian Retail Council (ARC) has warned another interest rate rise will further squeeze household budgets and compound the rising freight and supply-chain costs already confronting retailers as higher fuel prices flow through the economy ahead of the peak trading season. 

The Reserve Bank today lifted the cash rate by 25 basis points to 4.60 per cent, its highest level in almost 15 years and the fourth increase this year. 

ARC Chief Economist Glenn Fahey said the latest increase could not come at a worse time for retailers and households. 

“The Reserve Bank has a difficult job and there is no question inflation remains too high. However, a fourth interest rate rise this year comes as households and businesses are already confronting significantly higher petrol and diesel prices,” Mr Fahey said. 

Higher supply chain costs have been weighing on retailers for much of the year. The latest ABS figures show road freight transport prices surged 15.5 per cent in the June quarter, the largest quarterly increase since the series began in 1997, driven by higher fuel surcharges. 

“Households are now facing higher costs at the bowser and in their mortgage repayments. At the same time, retailers are paying more for finance, freight and deliveries as increased fuel costs flow through supply chains,” said Mr Fahey. 

“Retail spending has remained resilient, but there is a point where it becomes fragile. The combination of another rate rise and sharply higher fuel costs risks taking momentum out of consumer spending just as retailers enter the most important trading period of the year.” 

Mr Fahey said retailers were also facing continued pressure across wages, energy, insurance, leasing and compliance. 

“Consumers are shopping carefully, waiting for promotions and looking closely at value. Retailers can’t pass all of their increased costs on especially in peak sales periods, so many are absorbing them through tighter margins,” Mr Fahey said. 

“Many discretionary retailers rely heavily on Black Friday and Christmas to rebuild cash reserves, making the timing of this rate rise seriously difficult.” 

The pressure is also showing up in retail insolvency numbers. The latest provisional ASIC figures show 1,006 retail companies entered external administration or had a controller appointed in 2025–26, up 15.5 per cent from 871 the previous financial year. It is also more than triple the amount in 2021–22 and an increase of 215 per cent in four years. 

“The Government must recognise how difficult the business operating environment has become and focus on lifting productivity, reducing the cost of doing business and cutting red tape,” Mr Fahey said. 

Mr Fahey also encouraged Australians to support the retailers that invest in local jobs and communities. 

“When choosing where to spend this peak season, we encourage shoppers to back the retailers that back Australia,” Mr Fahey said. “Australian retailers invest here, employ here and support communities across the country. Backing Australian retail means backing Australian jobs, businesses and the communities they serve.”