The National Retail Association director Rob Godwin is calling out policymakers for neglecting retailers in 2024 and has also lashed out at the Reserve Bank for not cutting interest rates in June.
Governor Michele Bullock held interest rates at 4.35 per cent this month, citing that inflation has fallen substantially since its peak in 2022.
This comes as retail trade and consumer confidence hit an all-time low, which is putting Australia’s second largest employer at serious risk according to Godwin.
“The latest 3.75 per cent bump to the National Minimum Wage and minimum award wages, plus the increases to superannuation, will put more pressure on struggling retailers,” Godwin said.
“Our sentiment report shows 78 per cent of retailers highlighted wage costs as one of the top three constraints to their business’ success in 2024. Many are also being impacted by high insurance premiums and energy costs.
“The Workplace Relations team at the National Retail Association has fielded more than double the number of retailer enquiries pertaining to redundancy and restructure from 1 January 2024 to May 2024, compared with the same period last year.
“Weakening household consumption and high labour costs spell uncertainty for retailers who have had to keep up with rising business expenses.
“Retail is cracking under the weight of the 13 successive interest rate hikes and is in desperate need of urgent relief from the Reserve Bank.
“Many retailers will not survive any further rate rises and we would risk losing current and potential investors into Australia. This would see a higher-than-usual number of retail businesses exiting the market.”
The RBA has not ruled out future increases to interest rates, citing that inflation has been easing at a slower-than-expected rate.
In a statement from the Reserve Bank board, while inflation has fallen over the last two years, the pace of decline has slowed in the most recent data, with inflation still some way above the target range of 2 to 3 per cent.
“Over the year to April, the monthly CPI indicator rose by 3.6 per cent in headline terms, and by 4.1 per cent excluding volatile items and holiday travel, which was similar to its pace in December 2023,” the statement read.
“Broader data indicate continuing excess demand in the economy, coupled with elevated domestic cost pressures, for both labour and non-labour inputs. Conditions in the labour market eased further over the past month but remain tighter than is consistent with sustained full employment and inflation at target.
“Wages growth appears to have peaked but is still above the level that can be sustained given trend productivity growth. Recent data revisions suggest that consumption over the past year was stronger than previously suggested.
“At the same time, output growth has been subdued, and consumption per capita has been declining, as households restrain their discretionary expenditure and inflation weighs on real incomes.”
The RBA added that the outlook remains highly uncertain, with recent data demonstrating that the process of returning inflation to target is unlikely to be smooth.
“The central forecasts published in May were for inflation to return to the target range of 2–3 per cent in the second half of 2025 and to the midpoint in 2026. Since then, there have been indications that momentum in economic activity is weak, including slow growth in GDP, a rise in the unemployment rate and slower-than-expected wages growth.
“At the same time, the revisions to consumption and the saving rate and the persistence of inflation suggest that risks to the upside remain. Recent budget outcomes may also have an impact on demand, although federal and state energy rebates will temporarily reduce headline inflation.
“The persistence of services price inflation is a key uncertainty. Also, although growth in unit labour costs has eased, it remains high. Productivity growth needs to pick up in a sustained way if inflation is to continue to decline.”
The RBA added that there is also uncertainty around consumption growth. Real disposable incomes have now stabilised, the bank said, and are expected to grow later in the year, assisted by lower inflation and tax cuts.
“There has also been an increase in wealth, driven by housing prices. Together, these factors are expected to support growth in consumption over the coming year. But there is a risk that household consumption picks up more slowly than expected, resulting in continued subdued output growth and a noticeable deterioration in the labour market.
“More broadly, 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 conditions in the labour market remain tight.”
Despite these economic drivers on inflation, Godwin implored the RBA to start its next meeting in August with a rate cut.
“Retailers are reliant on the Reserve Bank to improve consumer spending and to enhance investor sentiment so Australia’s retail landscape can resume growing via interest rate cuts,” he said.
Meanwhile, the Australian Retailers Association is wiping its brow over the rate pause this month.
ARA chief industry affairs officer Fleur Brown said retailers continue to battle the dual headwinds of a spending downturn coupled with high costs of doing business.
“Whilst interest rates have remained on hold since November, most Australian household budgets remain under significant pressure,” Brown said.
“April’s retail sales continued to soften, with most discretionary categories remaining in decline – making it all the more important to avoid another cash rate increase.
“Changes to interest rates typically have a lag effect on sales and we’re still experiencing the impacts of interest rate increases last year.”
Retailers are hopeful an interest rate reduction may be on the horizon, according to the ARA, after the Bank of Canada and the European Central Bank recently cut interest rates for the first time since the pandemic.