The National Retail Association (NRA) has raised concerns for the retail industry after the Reserve Bank of Australia (RBA) increased the cash rate by 25 basis points to 3.75 per cent.
The NRA said small businesses across Australia have been held back from economic growth amid soaring interest rate rises and inflated costs biting into their bottom line.
CEO Greg Griffith said the impact of flat-lining consumer spending and increasing business costs have caused some business insolvencies in Australia.
This includes the collapse of Alice McCall in early 2023, owing over $1 million in debt.
“This is cause for worry for retailers and hospitality operators, which are the most susceptible to changes in consumer behaviour,” Griffith said.
“Business confidence will only be restored with a more pragmatic approach to interest rate increases.”
Data from the Australian Bureau of Statistics last month showed inflation fell by 7 per cent in the March quarter.
The NRA added that corresponding evidence overseas also suggests inflation is cooling as supply chains have begun to normalise.
“The RBA’s own research shows current inflation is driven by supply issues, which is now easing, but interest rate hikes only work to slow demand,” Griffith said.
“With our tight labour market, consumer spending is maintaining a level of consistency that prolongs the impact of inflation.
“This complex trade-off between economic activity and slowing inflation means retailers are being stretched in different directions, and it’s time to take a different approach.”
In a statement, RBA governor Philip Lowe confirmed that inflation has passed its peak, but said 7 per cent is still too high, and it will be “some time yet” before it is back to the target range.
“Given the importance of returning inflation to target within a reasonable timeframe, the Board judged that a further increase in interest rates was warranted today,” Lowe said.
Lowe said the Board paused the cash rate last month to provide time to assess the current economic outlook.
“While the recent data showed a welcome decline in inflation, the central forecast remains that it takes a couple of years before inflation returns to the top of the target range,” he said. “Inflation is expected to be four-and-a-half per cent in 2023 and 3 per cent in mid-2025.
“Goods price inflation is clearly slowing due to a better balance of supply and demand following the resolution of the pandemic disruptions. But services price inflation is still very high and broadly based, and the experience overseas points to upside risks.
“Unit labour costs are also rising briskly, with productivity growth remaining subdued.”
Lowe also highlighted the low unemployment rate, saying many firms are still struggling with hiring new workers, despite an ease in labour shortages and vacancies in recent months.
“The Board’s priority remains to return inflation to target,” Lowe said. “High inflation makes life difficult for people and damages the functioning of the economy. And if high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later, involving even higher interest rates and a larger rise in unemployment.
“Medium-term inflation expectations remain well anchored, and it is important that this remains the case. Today’s further adjustment in interest rates will help in this regard.”
Meanwhile, Griffith said retailers will be watching the Federal Budget announcement next week for economic relief for both businesses and consumers.
“The industry is calling for budget support measures that address the cost of living, strengthen the labour market and the transition to data and digital to help smaller businesses get ahead of the curve.
“Further hikes will dampen business recovery particularly as we address energy costs and an imminent wage increase.”