ures stoked by rising fuel prices that are impacting production and transport costs across the board for consumer goods. The Reserve Bank is expected to raise interest rates in what may well be a futile attempt to curb inflation that is currently 4.6 per cent, a decision they have to make ahead of Federal and state government budgets. Inflation is unlikely to fall through calendar 2026 and quite probably into 2027, despite any cessation of the Iran conflict, with fuel supply hampered by infrastructure damage to production facilities in the Middle East and potentially supply chain disruption and price increases on imported goods. Business input costs in Australia on rents, taxes, insurance, staffing, IT services, housing and domestic supply chains, especially for food, will also make a retreat by inflation more problematic. The budgets do not seem likely to be good news, even if they provide tax cuts or other measures to buffer consumer pain from the rising cost of living, which has already been hit by higher education, health and insurance costs. Consumer confidence has plunged to the lowest level since records began in 1973, according to the ANZ-Roy Morgan Consumer Confidence Index released in March. The survey also found 57 per cent of Australians feel worse off this year than last year, with concerns about inflation. Close to 90 per cent of Australians are concerned about grocery prices, and 78 per cent about fuel costs, with around 86 per cent of consumers prioritising price in their purchases, and 48 per cent focusing strongly on essential spending. Current consumer spending appears to defy the sentiment data, with year-on-year household spending up by 4.6 per cent according to ABS reports issued for February 2026. That growth figure had moderated from a 6.6 per cent year-on-year gain after solid results in the first half of the financial year to December, buoyed by exceptional November Black Friday sales and optimism following three interest rate cuts in 2025. The figure no doubt reflects some of the inflation factor, but volume spending was up by just over 2 per cent in that report after 0.3 per cent month-on-month increases for January and February over the same periods in 2025. Consumer spending rose 0.5 per cent month-on-month and 6.6 per cent year-on-year in January 2026, with growth concentrated in personal and household goods. In parallel, household spending volumes increased 2.2 per cent quarter-on-quarter and 2.4 per cent year-on-year. The rear vision mirror does not look too treacherous, although there was a roughly 20 per cent increase in retail insolvencies in 2025 and more casualties in the first quarter of 2026. Obviously, the spending momentum that had prevailed up to at least February did not benefit all retailers, with smaller independent stores and some mid-range chains closing their doors, surrendering ownership or operating only online. The retail chains that have collapsed in 2025–2026 include Jeans West, Ally Fashion, the Mosaic chains, Cheap as Chips, Glue Stores, Aussie Disposals, Barbeques Galore, Carters, Claire’s and At Home. While it continues to deny industry talk that it is in serious financial difficulty, the David Jones department stores have certainly struggled under its private equity owners, Anchorage Capital. At least in the short term, David Jones seems to have stabilised its position and can continue with a $250 million transformation program. Retail Food Group has also shuttered or rebranded the Michel’s Patisserie chain, while the publicly listed franchisor Collins Foods has opted to divest or close its 27 Taco Bell outlets. The reasons for the failure of many businesses are not new, but the pressure has clearly increased since the Covid years, even though retail sales were not that bullish before the pandemic hit. Consumer confidence has waxed and waned with the influence of interest rates, but also affordability issues. But the real bite for retailers has been sharp increases in operating expenditure, including employee wages and entitlements, energy prices, rents and occupancy costs, taxes, IT and technology investment, insurance, increased crime, the impact of inflation on products and, of course, rising interest rates and financing costs. For many retail businesses, a more aggressive approach by the Australian Taxation Office to overdue debt has added extra pressure. Retailers have seen margins and earnings squeezed as consumers have become more budget-conscious and as store foot traffic has been impacted by a shift to online shopping. Australia Post’s 2026 e-commerce report estimates Australian consumers spent $82.6 million online in calendar 2025, a 14 per cent year-on-year increase. The trend towards online shopping has left some retailers with outdated brick-and-mortar networks, either too many locations or legacy stores in the wrong locations that have drained cash flow or, worse, chalked up unsustainable losses. Competition from global online platforms such as Amazon, Temu and Shein, as well as major international brands such as TK Maxx and Uniqlo, has wooed customers away from many traditional retailers. Adding to the pressure for specialty chains and independent retailers, dominant Australian brands are expanding categories and using scale to cut prices. The outlook for the retail sector does not look like becoming any easier in the final two months of the 2026 financial year or into 2027. The challenges facing retailers are unlikely to improve soon. Rising interest rates, ongoing geopolitical tensions, and possible government budget shocks all suggest that the retail sector will face a tough period ahead. Further reading: How can retailers strengthen supply chains in 2026?