The National Retail Association has called the Reserve Bank of Australia’s ninth consecutive interest rate hike “irresponsible”, saying Australian consumers and retailers are already struggling to navigate economic uncertainty.
CEO Greg Griffith said the RBA’s official rate increase has risen to 3.35 percent, the highest in a decade.
“Consumer spending took a nosedive in December, dropping by 3.9 percent and breaking an 11-month streak of recorded growth,” Griffith said.
“A lot of Christmas spending occurred in November, and now that we’re over the festive-season high, consumers are curtailing their spending habits. This is the perfect time for the RBA to stop, wait, and watch its rate hikes take gradual effect.
“Another consecutive interest rate increase is not only irresponsible, but could cause an economic downturn and send some small retailers into an early recession with all their competing costs.”
Griffith added the retail sector is fully reliant on consumer spending. He said that while large retailers may cope with slowed economic growth, a downturn would hit small businesses much harder.
“We can’t afford to play fast and loose with the heart of the Australian economy,” Griffith said.
“We call on the RBA to wait until small businesses and consumers have picked up the pieces from the RBA’s latest interest rate hike before deciding on another increase next month.
“We also ask the Federal Government to address the true contributors to rising costs, namely supply-side challenges, and rising energy prices, through guided policy that protects small retailers.
“Given the chunk that’s been taken out of Australia’s pockets, it’s likely a lot of couples will be staying home this Valentine’s Day, the second time the RBA has driven a wedge between consumers and retailers at a time of celebration.”
RBA governor Philip Lowe said in a statement that while global inflation remains very high, it is moderating in response to lower energy prices, resolving supply chain challenges, and the tightening of monetary policy.
“It will be some time, though, before inflation is back to target rates,” Lowe said. “The outlook for the global economy remains subdued, with below average growth expected this year and next.
In Australia, Lowe said CPI inflation over the year to the December quarter was 7.8 per cent - the highest since 1990.
“In underlying terms, inflation was 6.9 per cent, which was higher than expected. Global factors explain much of this high inflation, but strong domestic demand is adding to the inflationary pressures in a number of areas of the economy.
“Inflation is expected to decline this year due to both global factors and slower growth in domestic demand. The central forecast is for CPI inflation to decline to 4¾ per cent this year and to around 3 per cent by mid-2025. Medium-term inflation expectations remain well anchored, and it is important that this remains the case.”
Lowe added that the Australian economy grew strongly over 2022, while the labour market remains very tight.
“The unemployment rate has been steady at around 3½ per cent over recent months, the lowest rate since 1974. Job vacancies and job ads are both at very high levels, but have declined a little recently.
“Many firms continue to experience difficulty hiring workers, although some report a recent easing in labour shortages. As economic growth slows, unemployment is expected to increase. The central forecast is for the unemployment rate to increase to 3¾ per cent by the end of this year and 4½ per cent by mid-2025.”
“Wages growth is continuing to pick up from the low rates of recent years, and a further pick-up is expected due to the tight labour market and higher inflation. Given the importance of avoiding a prices-wages spiral, the Board will continue to pay close attention to both the evolution of labour costs and the price-setting behaviour of firms in the period ahead.”
Lowe said the Board recognises that monetary policy operates with a lag and that the full effect of the cumulative increase in interest rates is yet to be felt in mortgage payments. He said there is uncertainty around the timing and extent of the expected slowdown in household spending.
“Some households have substantial savings buffers, but others are experiencing a painful squeeze on their budgets due to higher interest rates and the increase in the cost of living. Household balance sheets are also being affected by the decline in housing prices.
“Another source of uncertainty is how the global economy responds to the large and rapid increase in interest rates around the world. These uncertainties mean that there are a range of potential scenarios for the Australian economy.”
Lowe said the Board is seeking to return inflation to the 2-3 per cent range while keeping the economy on an “even keel”.
The Board expects a further increase in interest rates will be needed over the months ahead.
“In assessing how much further interest rates need to increase, the Board will be paying close attention to developments in the global economy, trends in household spending 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.”