Retailers are wiping their brows after the Reserve Bank of Australia (RBA) decided to hold the cash rate at 4.35 per cent in August.
Both the Australian Retailers Association (ARA) and the National Retail Association called the interest rate pause a relief for retailers.
ARA CEO Paul Zahra said retailers continue to battle the dual headwinds of slow spending coupled with higher costs of doing business.
“Many Australian household budgets remain under significant pressure,” Zahra said.
“Whilst there is no immediate relief in sight, today’s announcement will help keep consumer and business confidence steady.
Zahra added that small businesses are particularly vulnerable.
“We’ve seen extraordinary resilience from our retail community in recent years. But with ongoing pressure from many directions, many small businesses are struggling to cope,” he said.
“From the impacts of retail crime and ongoing labour shortages to rising costs across the board. Alongside this we have seen the most aggressive industrial relations reform in many decades, which also has flow on costs and impacts on business leaders and their teams.
NRA interim CEO Lindsay Carroll said she welcomed the RBA heeding its call to hold interest rates.
“The NRA warned in June that a rate hike could leave retail in a vulnerable position in the lead up to the all-important Christmas period,” Carroll said.
“Retailers will breathe a sigh of relief that households won’t lose any further discretionary spending power. The latest round of ABS retail trade figures for May saw an uptick in sales but that momentum would have been stalled with a rate rise.
“If we’re to see an ongoing revival in consumer confidence we can’t afford any further pressure on household budgets.”
Carroll added that the retail sector remains in a delicate position, with small businesses still grappling with rising overhead costs while trying to keep prices affordable for customers.
“ABS data for retail over the coming months will need to remain closely monitored by the RBA when making decisions about the cash rate between now and Christmas. Retailers simply can’t afford a repeat of the sluggish festive season they experienced in 2023.”
Meanwhile, new data from the ARA and American Express Small Retail Index also shows that financial strain is taking an emotional toll on small retailers.
A third of small business owners (33 per cent) are taking on more work than they usually do, 30 per cent say they have never felt more stressed, and 34 per cent say they have worked even when sick during the past 12 months.
Zahra said the ARA will continue to advocate for relief measures from the Federal Government.
“We need urgent action to ensure Australia’s $420 billion retail economy not only survives but thrives,” he said.
“It’s essential that retailers, both small and large, have the confidence to continue investing in their businesses over coming months.”
Inside the RBA’s verdict
In a statement, the RBA highlighted that inflation has fallen substantially since its peak in 2022, with higher interest rates working to bring aggregate demand and supply closer towards balance. But it pointed out that inflation is still some way above the midpoint of its ideal 2-3 per cent target range.
The RBA also highlighted that the consumer price index (CPI) inflation rose by 3.9 per cent in underlying terms over the year to the June quarter, as reported by the Australian Bureau of Statistics (ABS).
“But the latest numbers also demonstrate that inflation is proving persistent,” the RBA reported. “In year-ended terms, underlying inflation has now been above the midpoint of the target for 11 consecutive quarters. And quarterly underlying CPI inflation has fallen very little over the past year.”
From there, the RBA claimed the outlook is very uncertain, noting that recent data has shown the process of returning inflation to target has been slow and bumpy.
The central forecasts set out in its latest statement are for inflation to return to the target range of 2–3 per cent late in 2025 and approach the midpoint in 2026.
“This represents a slightly slower return to target than forecast in May, based on estimates that the gap between aggregate demand and supply in the economy is larger than previously thought.
“In part, this reflects an increase in the forecast for domestic demand. But it also reflects a judgement that the economy’s capacity to meet that demand is somewhat weaker than previously thought, evidenced by the persistence of inflation and ongoing strength in the labour market.”
These forecasts themselves have a substantial amount of uncertainty, RBA reported. “Revisions to consumption and the saving rate in the most recent National Accounts, high unit labour costs and the persistence of inflation – particularly in the services sector – suggest there are upside risks to inflation. Wages growth appears to have peaked but is still above the level that can be sustained given trend productivity growth.
“On the other hand, momentum in economic activity has been weak, as evidenced by slow growth in GDP, a rise in the unemployment rate and reports that many businesses are under pressure. And 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.”
There also remains a high level of uncertainty about the overseas outlook, according to the RBA.
“The outlook for the Chinese economy has softened and this has been reflected in commodity prices. Some central banks have eased policy, although they remain alert to the risk of persistent inflation. Globally, financial markets have been volatile of late and the Australian dollar has depreciated. Geopolitical uncertainties remain elevated, which may have implications for supply chains.
The RBA board wrapped up its statement saying it will do what is necessary to return inflation to its target range, within a reasonable timeframe.
“This is consistent with the RBA’s mandate for price stability and full employment. To date, longer-term inflation expectations have been consistent with the inflation target and it is important that this remain the case.
“Inflation in underlying terms remains too high, and the latest projections show that it will be some time yet before inflation is sustainably in the target range.
“Data have reinforced the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out. Policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range.”