Retailers are calling for cash rate relief despite a pause on interest rates at 4.35% in December.
National Retail Association (NRA) deputy CEO Lindsay Carroll said the Reserve Bank of Australia’s (RBA) decision to hold interest rates, while acceptable, isn’t good enough for retailers struggling to make it through Christmas.
“Retailers have been waiting all year for the big pay out that comes from pre/post-Christmas sales, but the interest rate rise in November was a heavy blow to consumer confidence,” Carroll said.
“Retailers brought their Black Friday and Cyber Monday bargains forward by three weeks in anticipation that last month’s interest rate hike would affect spending over Christmas.
“We have predicted $63 billion in retail spend by the end of Christmas, and while that number looks big, it will be flat earnings for the sector compared to last year.”
The Australian Bureau of Statistics (ABS) revealed retail trade fell 0.2 per cent in October, which comes after a 0.9 per cent increase in consumer spend in September.
“Retailers need all the income they can get after a flat year of trade and the RBA can’t keep knocking consumer spending on the head the moment businesses get a win,” Carroll said.
“The industry needs more than a hold on current rates, it needs relief from high interest rates in January so retail owners can start the next year with renewed confidence.”
According to Carroll, industry sources are forecasting a drop in Christmas trade across some states. Data from the ABS showed overall retail spending declines in New South Wales and Victoria - at 0.5% and 0.8% respectively - while Queensland and Western Australia reported lifts of 0.6% and 0.8% respectively.
“This means the consequences of the Reserve Bank’s recent rash decisions are having adverse effects on what should be retail’s biggest season.
“Retailers are going to do what they can to get shoppers through the door this festive season, so we encourage Aussies to head to the stores and get in on these huge bargains because it will be a buyers’ Christmas.”
Meanwhile, the Australian Retailers Association (ARA) has called the cash rate pause a relief for consumer and business confidence. With December’s cash rate decision now in the books, the RBA will not meet again until February – with just eight meetings in 2024.
ARA CEO Paul Zahra said December’s rate decision will give the industry “cautious optimism” heading into the final few trading weeks before Christmas and the highly important Boxing Day and post-Christmas period.
“Today’s decision will see the cash rate paused for at least two months, which will certainly help bolster business and consumer confidence in the vital Christmas and Boxing Day trading weeks to come,” Zahra said.
“At a time of immense financial pressure and hardship for most– avoiding another cash rate increase will have a positive impact on spending and retail preparations.”
Zahra said most discretionary retailers make up to two-thirds of their profits at this time of year. He said a second consecutive increase would have had a further negative impact on the rest of the year for retailers who are already battling a spending slowdown.
While Black Friday proved to be successful for retailers across the country, Zahra said it was most likely because of shoppers bringing forward their Christmas gifting to take advantage of the sales.
“While this year’s Black Friday was record-breaking, it may come at the expense of December trading – which we’re expecting to be more subdued,” Zahra said.
“Continued interest rate hikes have the dual effect of reducing customer spending whilst also increasing business costs – during a time where the industry is already under enormous pressure.”
Inside the RBA decision
According to a statement by Bullock, last month’s cash rate increase of 25 basis points came amid stronger than expected economic growth over the first half of the year. Underlying inflation was higher than expected, while conditions in the labour market eased, despite remaining tight.
Housing prices were continuing to rise across the country as was the number of new mortgages.
Bullock said the limited information received on the domestic economy since the November meeting has been broadly in line with expectations.
“The monthly CPI indicator for October suggested that inflation is continuing to moderate, driven by the goods sector; the inflation update did not, however, provide much more information on services inflation,” Bullock said. “Overall, measures of inflation expectations remain consistent with the inflation target.”
Wages growth also picked up in the September quarter, which Bullock said was expected given that it captured the earlier Fair Work Commission decision to lift award wages.
“Wages growth is not expected to increase much further and remains consistent with the inflation target, provided productivity growth picks up. Conditions in the labour market also continued to ease gradually, although they remain tight.”
According to Bullock, the higher interest rates are working to establish a more sustainable balance between aggregate supply and demand in the economy.
“The impact of the more recent rate rises, including last month's, will continue to flow through the economy. High inflation is weighing on people’s real incomes and household consumption growth is weak, as is dwelling investment.
“Holding the cash rate steady at this meeting will allow time to assess the impact of the increases in interest rates on demand, inflation and the labour market.”
Bullock said returning inflation to target within a “reasonable timeframe” remains the board's top priority. She said high inflation damages the functioning of the economy.
“It erodes the value of savings, hurts household budgets, makes it harder for businesses to plan and invest, and worsens income inequality. And if high inflation were to become entrenched in people’s expectations, it would be much more costly to reduce later, involving even higher interest rates and a larger rise in unemployment.
“To date, medium-term inflation expectations have been consistent with the inflation target and it is important that this remains the case.”
Looking ahead, Bullock said there are significant uncertainties to keep in mind. She said while there have been encouraging signs on goods inflation aboard, services price inflation has remained persistent and claimed the same could occur in Australia.
“There also remains a high level of uncertainty around the outlook for the Chinese economy and the implications of the conflicts abroad,” Bullock said. “Domestically, there are uncertainties regarding the lags in the effect of monetary policy and how firms’ pricing decisions and wages will respond to the slower growth in the economy at a time when the labour market remains tight.
“The outlook for household consumption also remains uncertain, with many households experiencing a painful squeeze on their finances, while some are benefiting from rising housing prices, substantial savings buffers and higher interest income.”
Further interest rate rises ahead will depend upon the data and the evolving assessment of risks, Bullock said.
“In making its decisions, the board will continue to pay close attention to developments in the global economy, trends in domestic demand, and the outlook for inflation and the labour market.
“The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.”