Australia's retail industry peak bodies are calling on the Reserve Bank of Australia (RBA) to cut interest rates sooner rather than later.
The RBA held the cash rate at 4.35 per cent in March, citing slowed economic growth and inflation holding steady at 3.4 per cent over the year to January.
National Retail Association director Rob Godwin said weakening household consumption and high labour costs spell uncertainty for retailers who have had to keep up with business expenses by spending out-of-pocket.
“January sales outpaced the December Christmas trading period by 1.1 per cent, as revealed by the Australian Bureau of Statistics, indicating how poor retail’s peak sales season performed,” Godwin said.
“While demand is high, middle Australia, the target market for most retailers, is under immense economic pressure from the excessive 13 interest rates rises.
“As consumers continue to tighten their purse strings retailers have had to slash orders for new stock to avoid losing money on excess inventory.
“If the Reserve Bank leaves cutting interest rates to 2025, we would risk losing current and potential investors into Australia, which means we will see a higher-than-usual number of retail businesses exit the market.”
The Reserve Bank has not ruled out future increases to interest rates, citing elevated services inflation and its determination to return overall inflation to its target range of 2-3 per cent.
“We're not confident enough to say we can rule out further interest rate changes,” Michele Bullock told reporters yesterday. “But we do think that we are on the path to get ourselves back to inflation in target within our forecast period.
“We still have to get inflation down and the risks to achieving that remain finely balanced. The war isn't yet won. So we continue to be vigilant and we can't rule anything in or out.”
Godwin said retailers are reliant on the RBA to improve consumer spending and enhance investor sentiment so Australia’s retail landscape can continue to grow.
“We need more than a hold on current rates, we need the Reserve Bank to consider the high cost-of-trading business owners have to face every day as a consequence of costly policy decisions.”
Meanwhile, the Australian Retailers Association (ARA) welcomed the cash rate hold this month. ARA CEO Paul Zahra said the decision to hold is no surprise given the downward inflationary trend.
“However, it provides important stability for Australians and businesses,” Zahra said. “At a time of immense financial pressure and hardship for most, holding the cash rate remaining stable at 4.35% since November is an important confidence signal for our economy.
“Retail performance has been subdued in recent months, with discretionary spending taking a significant hit. Whilst interest rates have remained on hold for four months, most Australian household budgets remain under significant pressure.
“With the rising cost of doing business and softening discretionary spending putting strong pressure on retailers, this is a much-needed break.
Zahra said with inflation reducing considerably, he and his team is hopeful the RBA may consider reducing interest rates in the near future.
According to a statement by the RBA, the economic outlook in Australia remains uncertain, despite encouraging signs that inflation is moderating.
“The December quarter national accounts data confirmed growth has slowed,” the statement confirmed. “Household consumption growth remains particularly weak amid high inflation and the rise in interest rates.
“After recent declines, real incomes have stabilised and are expected to grow from here, which is expected to support growth in consumption later in the year.”
Meanwhile, growth in unit labour costs remains very high, with the RBA stating labour costs have begun to moderate slightly as measured productivity growth has picked up in the past two quarters
“But whether this trend will be sustained is uncertain,” the statement continued. “The central forecasts are for inflation to return to the target range of 2–3 per cent in 2025, and to the midpoint in 2026.
“Services price inflation is expected to decline gradually as demand moderates and growth in labour and non-labour costs eases. Employment is expected to continue to grow moderately, and the unemployment rate and the broader underutilisation rate are expected to increase a bit further.
“While there have been favourable signs on goods price inflation abroad, services price inflation has remained persistent and the same could occur in Australia. There also remains a high level of uncertainty around the outlook for the Chinese economy and the implications of the conflicts in Ukraine and the Middle East.
“Domestically, there are uncertainties regarding the lags in the effect of monetary policy and how firms’ pricing decisions and wages will respond to the slower growth in the economy at a time of excess demand, and while the labour market remains tight. The outlook for household consumption also remains uncertain.”
Following March’s cash rate decision, the RBA will meet again on May 7 – with just eight meetings in 2024.