The Australian Retail Council has blasted the Reserve Bank of Australia’s decision to raise interest rates by 25 basis points to 4.1 per cent, saying it adds to rising supply chain costs thanks to the war in the Middle East.
ARC CEO Chris Rodwell said retailers are confronting a difficult combination of rising costs and pressure on consumer spending.
“Retail is again facing a double hit — rising supply chain costs from the global oil shock and a rate rise that will likely further squeeze household spending,” he said.
This comes as the sector began emerging from a challenging adjustment period in the past few years as households responded to higher interest rates and rising living costs following the pandemic. Retail spending – including fashion spending – has been trending more positively in recent months, particularly in the lead up to Christmas 2025.
But Rodwell rightly pointed out that retail businesses have been operating under extremely tight margins as the cost of doing business has continued to rise. Ragtrader has heard reports of rising leasing costs alongside general lifts in wages across the industry.
“Through the second half of last year and into January this year, we began to see stable conditions return,” Rodwell said. “Growth was not extraordinary, but it was solid and steady.
“Consumers remained highly value-conscious, with spending concentrated around promotions and discounting as households looked to stretch their budgets. That meant retailers were working harder to maintain margins, even as trading conditions began to stabilise.”
But with the war between the United States and Iran settling in, resulting in a spike in global oil prices, and this resurging pressure on indebted households and businesses reliant on borrowing, Rodwell said the new risk is retailers facing rising cost inputs at the same time consumer spending could slow again.
This comes as consumer confidence slumped to its second-lowest point in history this week, just behind the final week of March 2020 when COVID-19 became a problem.
Australia’s retail sector generates around $444 billion in annual turnover and employs one in ten Australians, meaning a slowdown would have broader implications for the national economy. Fashion makes up $28 billion of this.
According to Rodwell, when the retail sector comes under pressure, the broader economy feels it very quickly. But, he added that the 2026 Federal Budget presents an opportunity for the government to ease structural pressures facing the sector.
“Retailers are looking for practical steps to reduce the cost of doing business and support economic growth,” Rodwell said. “That includes serious efforts to minimise the fragmentation and duplication of cross-border rules and regulation that create unnecessary compliance and complexity for businesses operating nationally.”
Recent ARC and Mandala research found inconsistent state and territory regulations are imposing a growing economic penalty, showing regulatory fragmentation will wipe $26 billion from national GDP over the next decade and add more than $9 billion to Australians in household costs.
“At a time when households and businesses are facing rising fuel and borrowing costs, the focus must be on reducing unnecessary regulatory burden and supporting business confidence.”