The Reserve Bank of Australia (RBA) has increased the cash rate by 25 basis points to 4.1 per cent.

It comes shortly after the most recent rate hike in February, which prompted some criticism from Australia’s retail industry.

But the RBA defended its position, citing a “material risk” that inflation will remain above target for longer than anticipated. The most notable contributor to these risks is the ongoing Middle East conflict and its pressure on oil supply through the now-blocked Strait of Hormuz.

Elsewhere, the RBA said that stronger-than-expected growth in private demand; higher business investment and lower consumption; declining growth in unit labour costs; and low unemployment have added to the challenges.

Much like February’s rate hike, the Australian Retail Council (ARC) has criticised the monetary decision.

“Retail is again facing a double hit – rising supply chain costs from the global oil shock and a rate rise that will likely further squeeze household spending,” its CEO, Chris Rodwell, said.

“Through the second half of last year and into January this year, we began to see stable conditions return. Growth was not extraordinary, but it was solid and steady. 

“Consumers remained highly value-conscious, with spending concentrated around promotions and discounting as households looked to stretch their budgets. That meant retailers were working harder to maintain margins, even as trading conditions began to stabilise.”

Graham Cooke, head of consumer research at financial comparison site Finder, echoed Rodwell’s views that this was a “tough blow” for Australians.

“The RBA has decided that the risk of runaway inflation is a bigger threat than the immediate strain on budgets,” Cooke said. “How long this conflict continues will determine the full impact on Aussie households.”

For retailers, market research firm Circana warned that the rate hike could affect consumer behaviour.

”In these moments we typically see stronger promotion hunting, more switching between retailers and adjustments to basket size as households look for ways to manage their budgets,” Alistair Leathwood, head of media analytics and insights at Circana, said.

”Australian consumers are extremely value conscious. As a result, brand loyalty becomes less entrenched and shoppers are increasingly willing to switch between brands and retailers if it means getting better value for money.”