The National Retail Association has warned that the Reserve Bank of Australia’s eighth consecutive interest rate hike to 3.1% will squeeze consumer budgets ahead of the Christmas rush.
NRA interim CEO Lindsay Carroll slammed the Reserve Bank of Australia, saying it has used the recent dip in inflation from 7.3% to 6.9% as an excuse to take a further bite out of household consumption.
“These rate rises are unprecedented and will make it even harder for Australian consumers to appropriately budget over the holiday spending season,” Carroll said.
“Retail turnover was down 0.2 per cent in October, the first decline of the year, indicating that households are feeling the impact of higher bills and are reeling in their discretionary spending.
“The RBA needs to give it a rest. The retail sector is reliant on shoppers being able to afford the special end-of-year celebrations. We don’t want people to have to choose between celebrating Christmas or living comfortably on a day-to-day basis.”
Carroll continued, saying these attempts to curb inflation have done nothing to impact the “true culprits” of rising costs, supply challenges and rising energy prices.
“Not to mention the IR Bill that was recently passed will only serve to increase inflationary pressures,” she said.
“The NRA’s Consumer Sentiment Report released in October revealed that 71% of consumers had changed their spending behaviour because of rising costs, and that purchasing decisions during the upcoming sales events would be largely driven by the discounts and offers available.”
“Retailers will have to adjust quickly, and they may have to adjust in ways they can’t afford in order to match their offerings to their consumers’ ability to spend.”
Meanwhile, RBA governor Philip Lowe said that returning inflation to target requires a more sustainable balance between demand and supply. However, he noted that a further increase in inflation is expected over the months ahead, with inflation forecast to peak at around 8% over the year to the December quarter.
“Inflation is then expected to decline next year due to the ongoing resolution of global supply-side problems, recent declines in some commodity prices and slower growth in demand,” he said. “Medium-term inflation expectations remain well anchored, and it is important that this remains the case. The Bank’s central forecast is for CPI inflation to decline over the next couple of years to be a little above 3 per cent over 2024.”
Lowe continued, saying the cumulative interest rate increases were necessary to ensure that the current period of high inflation is only temporary.
“High inflation damages our economy and makes life more difficult for people,” he said. “The Board’s priority is to re-establish low inflation and return inflation to the 2–3 per cent range over time.”
“The Board expects to increase interest rates further over the period ahead, but it is not on a pre-set course. It is closely monitoring the global economy, household spending and wage and price-setting behaviour.
“The size and timing of future interest rate increases will continue to be determined by the incoming data and the Board’s assessment of the outlook for inflation and the labour market.”
“The Board is seeking to keep the economy on an even keel as it returns inflation to target, but these uncertainties mean that there are a range of potential scenarios. The path to achieving the needed decline in inflation and achieving a soft landing for the economy remains a narrow one.”