Retailers have responded swiftly to the Reserve Bank’s decision to raise interest rates yet again on Tuesday – by another 25 basis points to 4.1 per cent.
The move comes just days after a 5.75 per cent increase in the minimum wage which will cost employers more than $50 a week for all affected staff.
National Retail Association CEO Greg Griffith urged the Reserve Bank “to wake up and change direction” saying Australian business owners needed a break to assess the latest economic impacts before another interest rate rise.
“The implications of a twelfth interest rate rise and a significant award wage increase will hit retailers hard,” Griffith said.
“In just a few months the sector has been hit with a wage and superannuation guarantee increase, staffing and resourcing issues, high inflation and cost of living causing flatlining consumer confidence and spending.”
But a recalcitrant Reserve Bank board has ignored widespread calls from across industry after the last rate rise in the first week of May even warning more rate rises are likely. At 4.1 per cent, the cash rate is now the highest in a decade.
Analysts at RateCity calculated Tuesday’s rise will add another $76 to monthly repayments on a typical $500,000, 25-year home loan. The cumulative impact on a mortgage of that size and term since May last year is now $1100.
Announcing the decision, RBA governor Philip Lowe expressed concern that high inflation for services will persist due to rising wages and very low productivity growth.
“Inflation in Australia has passed its peak, but at 7 per cent is still too high and it will be some time yet before it is back in the target range,” he said in a statement.
“This further increase in interest rates is to provide greater confidence that inflation will return to target within a reasonable timeframe.”
Griffith meanwhile said the cost of doing business is already “unfeasible” to many small businesses and this latest rate rise “could force many retailers to shut down”.
Rising interest rates leave less disposable cash for consumers to spend, meaning reduced takings for retailers – impacting them just as new wage increases take effect on July 1.
Griffith said that for some retailers “any hope of survival will depend on shedding labour costs”.
“This is a challenge for businesses of all sizes, but particularly our small and medium enterprises. It will really put their viability to the test when we see pay packets rise faster than sales,” Griffith said.
“Paying more on interest rates and more on wages means some businesses will have to figure out if they can keep going, all the while not knowing which blow they will cop next.
“What both retailers and consumers need right now is stability.”
More rate rises likely, says broker
Brett Reynolds, chief investment officer at Tiger Brokers Australia expressed some sympathy for the Reserve Bank board’s position.
“The high April inflation figure meant the RBA had to raise interest rates again to try to curb the inflation rate. It is highly likely that we’ll see at least one more rate rise this year,” he said.
“Employment and the participation rate remain historically high while inflation is not showing any signs of falling significantly. The incoming monetary policy board will see there is still a need to increase interest rates.”
Reynolds said food inflation is hurting many Australians, running at about 8 per cent.
“This is an incredibly high figure that everyone can see every time they go to the supermarket.”
He added that the rising interest rates will put further pressure on landlords, which is likely to put pressure to lift rents even further.
“First-home buyers will also continue to be impacted, their borrowing capacity will be further reduced. The housing market is yet to show any signs of cooling from these interest rate changes, making it tough for those looking to move into homeownership.”
