Australian retailers have welcomed the Reserve Bank of Australia’s hold on interest rates this month.
The rate currently sits at 3.6% after 10 consecutive rate increases.
National Retail Association CEO Greg Griffith said cost of living has weighed heavily on consumer sentiment recently.
“Retail spending remained flat in the month of February,” Griffith said. “Data released by the Australian Bureau of Statistics revealed a 0.2% increase in retail turnover, down from a 1.8% increase in January.
“Inflation is down 6.8% from 7.4% last month, which comes as no surprise given consumers are reining in their spending even on non-discretionary items.
“This small period of relief presents an opportunity for businesses to get on top of labour shortages and the continued supply-chain issues that exacerbate inflation and put a strain on retail growth.”
RBA governor Phillip Lowe said in a statement that the full effect of its three-and-a-half percentage point increase since May last year is yet to be felt.
He said the Board decided to hold interest rates steady to assess the current impact and economic outlook.
“Global inflation remains very high,” Lowe said. “In headline terms it is moderating, although services price inflation remains high in many economies.
“The outlook for the global economy remains subdued, with below-average growth expected this year and next. The recent banking system problems in the United States and Switzerland have resulted in volatility in financial markets and a reassessment of the outlook for global interest rates.
“These problems are also expected to lead to tighter financial conditions, which would be an additional headwind for the global economy.”
According to Lowe, a range of information - including the monthly CPI indicator - suggests that inflation has peaked in Australia.
“Goods price inflation is expected to moderate over the months ahead due to global developments and softer demand in Australia,” he continued. “Meanwhile, rents are increasing at the fastest rate in some years, with vacancy rates low in many parts of the country.
“The prices of utilities are also rising quickly. The central forecast is for inflation to decline this year and next, to around 3 per cent in mid-2025.
“Medium-term inflation expectations remain well anchored, and it is important that this remains the case.”
Lowe added that growth in the Australian economy has slowed, saying growth over the next couple of years is expected to be below trend.
“There is further evidence that the combination of higher interest rates, cost-of-living pressures and a decline in housing prices is leading to a substantial slowing in household spending. While some households have substantial savings buffers, others are experiencing a painful squeeze on their finances.”
The labour market also remains very tight, said Lowe, with the unemployment rate a ta near 50-year low. He said that many entities continue to experience difficulty hiring workers, although some report and easing in labour shortages.
“As economic growth slows, unemployment is expected to increase.”
The RBA Board has not ruled out interest rate increases in the future, saying the Board has a priority to return inflation to target.
Meanwhile, Griffith said the retail sector needs targeted support, particularly for Australian SMEs who may be struggling financially.
“With the Federal Budget just a couple of months away, the government should be considering relief packages for businesses who are at risk of shutting down,” Griffith said.
He also asked the RBA to reconsider before instituting another rate rise in May.