The Reserve Bank of Australia on Tuesday said that it will leave the cash rate unchanged at 4.35 per cent – a level that it has been at since last November. The decision comes despite inflation cooling and was criticised by retailers who say it is a “missed opportunity” to support households and businesses in the lead up to the holiday season.
The central bank admitted that it underestimated the growth in government spending, and warned that underlying inflation in Australia was more than every other major advanced economy except the UK.
“While headline inflation has declined substantially and will remain lower for a time, underlying inflation is more indicative of inflation momentum, and it remains too high,” said the RBA in a statement after having met over Monday and Tuesday to discuss its position on the cash rate.
“It will be some time yet before inflation is sustainably in the target range and approaching [2.5 per cent]. This reinforces the need to remain vigilant to upside risks to inflation and the board is not ruling anything in or out.”
Retailers for whom the holiday season is the busiest time of the year are particularly hit by the latest decision. A total of $36.45 billion was spent at retail throughout the month of September 2024, according to Australian Bureau of Statistics (ABS).
The Australian Retailers Association (ARA) chief executive officer Paul Zahra said retailers continue to battle the dual headwinds of slow spending coupled with higher costs of doing business.
“Small businesses are particularly vulnerable, with ongoing pressure from many directions including higher business costs across the board,” said Zahra.
“Many retailers have been investing heavily in Christmas and the holiday season, including additional staff, new product lines and festive store fitouts.
“Discretionary retailers make up to two-thirds of their profits in the all-important Christmas trading period hence, it is critical to do well enough to be able to sustain the winter months. Retailers employ tens of thousands of additional casual staff over the peak season providing many with the opportunity to earn additional income.”
He added that “urgent action” was required to ensure Australia’s A$430 billion retail economy “not only survives, but
thrives.”
Zahra noted, “It’s essential that retailers, both small and large, have the confidence to continue investing in their businesses over the coming months.”
Independent research into retailer and consumer sentiment over the last few weeks has also pointed out to an overall pessimistic outlook for the remainder of the year.
Deloitte’s 13th Retail Holiday Report released recently says shoppers are looking to spend almost 18.9 per cent less – an average of $1002 each – over the coming holidays. The average expenditure during the 2023 holidays was $1192 per shopper. The report also noted that 51 per cent of retailers expect sales growth during the 2024 holiday season, down from 57 per cent a year ago and 67 per cent in 2022.
Data released last week showed headline inflation in the country had eased to 2.8 per cent in the 12 months to September – falling to within the RBA’s 2-3 per cent target band for the first time in three-and-a-half years.
However, that figure was outpaced by the RBA’s preferred price gauge – trimmed mean inflation, which strips out the most volatile price changes – that was recorded at 3.5 per cent, its lowest level since December 2021, but which is still higher than the range that the RBA wants in order to consider rate cuts.
