The Reserve Bank of Australia (RBA) has held interest rates steady at 4.35% in February, with retailers pleading for more relief.
It comes after the rate of inflation nearly halved between December 2022 and December 2023, from a peak of 7.8% to 4.1%.
The RBA expects inflation to hit 3.3% by June this year, with projections indicating it will enter the bank’s target range of 2-3% by mid-2025.
Australian Retailers Association CEO Paul Zahra said holding the cash rate steady will give the retail industry some short-term certainty following subdued trade in December.
“We’re pleased to see the RBA provide some much-needed reprieve for consumers and businesses to set the tone for the beginning of 2024,” Zahra said.
“At a time of immense financial pressure and hardship for most – avoiding another cash rate increase will positively impact spending and retail operations.
“December’s retail performance was subdued, with cost-of-living pressures taking their toll and many shoppers ticking off their Christmas gift lists in November during the Black Friday sales.
“As a result, retailers will be looking to regain sales momentum in the months ahead.”
Meanwhile, National Retail Association Deputy CEO Lindsay Carroll has called for the RBA to move up its timeline for rate cuts to give retailers a better chance of surviving the year.
“Retailers are struggling to keep up with business costs after a failed festive spending season, which had the biggest bargains seen industry wide," Carroll said.
“The 2.7 per cent drop in December sales month-on-month, as revealed by the Australian Bureau of Statistics, is a testament to how effective the rate rises have been.
“Food courts look deserted, and retailers have had to refinance and close some of their doors. If the industry doesn’t get an indication of some relief soon, it may be in crisis.
“While economists predict an interest rate cut around May, we urge the Reserve Bank to bring that forward and soften its policy outlook so we can get consumer spending moving again."
The Government’s reworked stage three tax cuts have been introduced to Parliament today and if passed will see low to middle income Australians benefit the most.
“We can assume the Government’s proposed stage three tax cuts are likely to modestly improve consumer sentiment among a majority of Australians, but we won’t see the effects of these cuts for a while,” Carroll said.
“Retailers are reliant on the Reserve Bank to improve consumer spending and set a better tone for the year since this is the only source of income for many business owners.
“We need more than a hold on current rates, we need consumers back in stores bringing life back to the retail sector.”
According to the RBA, goods price inflation was lower than the bank’s November forecasts.
“It has continued to ease, reflecting the resolution of earlier global supply chain disruptions and a moderation in domestic demand for goods,” the RBA shared in a statement.
“Services price inflation, however, declined at a more gradual pace in line with the RBA’s earlier forecasts and remains high. This is consistent with continuing excess demand in the economy and strong domestic cost pressures, both for labour and non-labour inputs.”
While there are encouraging signs, the RBA claimed the economic outlook is uncertain, with the RBA board remaining attentive to inflation risks.
“While there have been favourable signs on goods price inflation abroad, services price inflation has remained persistent and the same could occur in Australia,” the statement read. “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.”
With February’s cash rate decision now in the books, the RBA will meet again in mid-March – with only eight meetings in 2024.