The Reserve Bank of Australia (RBA) has paused cash rate hikes this month, staying at 4.10 per cent.
NRA CEO Greg Griffith said this allows the retail sector to make use of the recent “positive momentum”.
“Australian Bureau of Statistics data shows that Mother’s Day spending in May gave retailers’ some relief as promotional sales encouraged consumers to spend on florists and cosmetic retailers,” Griffith said.
“The pause in interest rates immediately follows the wage and superannuation guarantee increases that kicked in last Saturday (1 July).
“We predict the payroll increase of 5.75 per cent could force smaller retailers to shed labour costs, but the rates reprieve might give them time to find creative solutions to deal with increasing business costs.
“The resilience of the Australian retail sector speaks for itself. We urge businesses to do what they can to boost morale and offer their customers experiences that inspire loyalty even through the inflation storm.”
Despite the reprieve, Griffith said the retail sector hopes the RBA’s “insistence on taking more money out of the retail sector” comes to an end this month.
“We ask the RBA to stay their hand for another couple of months so businesses can find their bearings before dealing with another rate increase.
“Retailers have faced several blows and while the rates pause is a step in the right direction, we urge the Government to turn its attention to businesses that are struggling to stay afloat.”
According to RBA governor Philip Lowe, interest rates have increased by 4 percentage points since May last year.
“The higher interest rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so,” Lowe said. “In light of this and the uncertainty surrounding the economic outlook, the Board decided to hold interest rates steady this month.
“This will provide some time to assess the impact of the increase in interest rates to date and the economic outlook.”
Lowe said inflation in Australia has passed its peak, with the monthly cost price index (CPI) indicator for May showing further decline.
“But inflation is still too high and will remain so for some time yet,” Lowe said. “High inflation makes life difficult for everyone and damages the functioning of the economy. It erodes the value of savings, hurts household budgets, makes it harder for businesses to plan and invest, and worsens income inequality. 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.
“For these reasons, the Board’s priority is to return inflation to target within a reasonable timeframe.”
Growth in the Australian economy has slowed, according to Lowe, while the tight labour market has eased slightly. He said firms are reporting that labour shortages have lessened, yet vacancies and advertisements are still at very high levels.
“Labour force participation is at a record high and the unemployment rate remains close to a 50-year low,” Lowe said. “Wages growth has picked up in response to the tight labour market and high inflation.
“At the aggregate level, wages growth is still consistent with the inflation target, provided that productivity growth picks up.”
Lowe said the RBA board is still expecting the economy to grow as inflation returns to 2-3 per cent target range.
“But the path to achieving this balance is a narrow one,” he said. “A significant source of uncertainty continues to be the outlook for household consumption. The combination of higher interest rates and cost-of-living pressures is leading to a substantial slowing in household spending.
“While housing prices are rising again and some households have substantial savings buffers, others are experiencing a painful squeeze on their finances. There are also uncertainties regarding the global economy, which is expected to grow at a below-average rate over the next couple of years.”
According to Lowe, some further tightening of monetary policy may be required to bring down inflation in a “reasonable timeframe”, but will depend on how the economy and inflation evolve.
“The decision to hold interest rates steady this month provides the Board with more time to assess the state of the economy and the economic outlook and associated risks,” Lowe said. “In making its decisions, the Board will continue to pay close attention to developments in the global economy, trends in household spending, and the forecasts 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.”