The National Retail Association (NRA) has raised concerns over the latest interest rate hike as Australian retailers prepare for their first restriction-free Christmas since 2019.
The NRA has warned that the Reserve Bank of Australia’s 2.85% interest rate hike will only impede Christmas spending as the lag effect of seven consecutive rises catches up to consumers.
Interim CEO Lindsay Carroll said with a lack of evidence that the rapid interest rate hikes have managed to control inflation, the increase will only bite household consumption.
“The rise will weigh heavily on Australian consumers at a time when shoppers are reassessing their spending intentions,” Carroll said.
The interim CEO explained that even thought retail turnover is up 0.6% in September, households have only just started catching up to recent hikes. She said household spending power will soften as the direct cash hit from the rate rise is felt harder in mortgage repayments in the months to come.
“We are seeing consumers spend more on essentials from the cost of living pressures, but retail is reliant on shoppers to be able to afford those special end-of-year celebrations,” Carroll continued.
“The NRA’s Consumer Sentiment Report released last month revealed that 71% of consumers had changed their spending behaviour amidst inflationary pressures, meaning retailers must be prepared to match their offerings with their consumers’ ability to spend.”
Meanwhile, the key drivers behind the current inflationary conditions - fuel and energy costs - remain unchanged.
“The inflation we are dealing with at the moment is coming from the supply side and movement of goods between nations,” Carroll said.
“High oil and gas prices and flooding on the East Coast pushing up the cost of produce are not affected by higher interest rates.”
Earlier this month, Australian Retailers Association (ARA) CEO Paul Zahra said consumers are continuing to spend in the face of cost-of-living pressures. Spending is expected to continue over Christmas.
“It’s pleasing to see many retailers build strong momentum as they enter their most critical time of year,” Zahra said. “Our holiday sales predictions with Roy Morgan show Australians will spend nearly $64 billion in the lead up to Christmas, up 3% on last year.”
“While consumers are challenged by rising interest rates and inflation, that hasn’t impacted spending here just yet. We appear to be experiencing a delayed impact from those factors, with a softening of sales more likely to occur in 2023.”