The Australian Retail Association (ARA) has welcomed the Reserve Bank of Australia’s (RBA) decision not to raise the official cash rate today with evidence showing consumer demand dried up three weeks ago (as predicted by the ARA last November).
According to the ARA, trading is currently at its poorest. The ARA’s executive director Richard Evans says this tightening in consumer spending is being reflected in supermarket spending, with consumers preferring home brands and private labels, while shopping at low cost chains such as Aldi.
“The current trend is likely to see retail spend coming down from the year-on-year figure of 8 per cent, which ended December 2007 to approximately 5.5 per cent for the year-on-year ending the March quarter 2008. We predict this cycle will continue to fall to around 4.5 per cent by the end of the September quarter 2008,” says Evans.
And while according to Evans some categories will go below 4.5 per cent, the overall retail spend will be held up by the food sector, which contributes 40 per cent to retail sales.
He says this drop in consumer confidence is also reflected in the April 2008 SAI Global/ACCI Survey of Investor Confidence, showing a sharp decline in business expectations.
“The survey shows that interest rates and ongoing financial sector turmoil has significantly dented business confidence. Adding to business concerns are costs from wages and input prices which have continued to grow strongly, though price growth is expected to moderate,” says Evans.
However, he adds that the decision not to raise rates shows the RBA responded to retailers and eased from their heavy handed approach to the economy, which will allow the market to correct itself.