The Australian Retail Council (ARC) has warned today’s Reserve Bank interest rate rise will further squeeze household spending as retailers enter the crucial Black Friday and Christmas trading period.
The Reserve Bank increased the cash rate by 25 basis points to 4.85 per cent, its highest level since November 2008 and the fifth increase this year.
ARC Chief Economist Glenn Fahey said the increase would compound pressure on businesses already facing higher borrowing, freight, wages and operating costs, while leaving customers with less to spend.
“Another rate rise could hardly come at a more difficult time for retailers and the households they serve,” Mr Fahey said.
“There will be families now reassessing their Christmas budgets, while retailers are heading into their most important trading period with stock ordered, staff and bills to pay.
“For many small businesses, this period builds the cash reserves that carry them through the quieter months. The consequences of a disappointing ‘peak season’ can last well into the following year. It can be make or break.”
Fahey warns that the persistently high level of inflation continues to be a source of concern, but also that recently released figures pointed to a mixed picture on what’s contributing to recent rises.
Annual inflation rose to 4.3 per cent, with housing and transport the largest contributors. However, clothing and footwear prices fell 2.7 per cent. Furnishings, household equipment and services fell 0.6 per cent, and food and non-alcoholic beverage prices were unchanged.
Mr Fahey said the burden of bringing inflation under control was falling unevenly across the community.
“Mortgage holders, particularly younger families with large loans, and small businesses reliant on borrowing are bearing a disproportionate share of the burden,” he said.
“There is a fundamental unfairness in repeatedly asking the same households and businesses to shoulder the inflation challenge. The more we rely on interest rates alone, the more pressure we put on those already stretched.
“Bringing inflation under control is essential to protecting Australians’ long-term living standards. The Reserve Bank has a clear responsibility to deliver that, and it must act with the only tool available to it. But it cannot be expected to do all the heavy lifting. We need to do more to address the underlying drivers of inflation and ease the pressure on households and businesses.”
“Governments must act now to reduce unnecessary business costs, cut red tape and make it easier for businesses to invest and grow. The longer these pressures go unaddressed, the more we leave mortgage holders and small businesses to carry the burden.”
Mr Fahey said higher interest rates reduce demand across the economy, especially discretionary retail categories where price growth is already subdued.
“The inflation numbers show retailers cannot simply pass on every increase when their customers are watching every dollar, even when faced with higher fuel costs flowing through freight, deliveries and the cost of getting products onto shelves.
“Retailers need a strong Christmas to support jobs and invest in the year ahead. Today’s decision makes that job much harder.”
About us: Australian Retail Council (ARC) represents a $444 billion sector that employs 1.4 million Australians across metropolitan, regional, and remote communities – making retail the largest private sector employer in the country and a significant contributor to the Australian economy. Our membership spans the full spectrum of Australian retail, from family-owned small and independent retailers that make up 95% of our membership, through to our largest national and international retailers that employ thousands of Australians and support both metropolitan and regional communities every day.
