Retailers will feel the brunt of the Reserve Bank of Australia's (RBA) fifth 25 point interest rate rise since October last year, taking the cash rate to 4.25 per cent after dismal retail trade continued in February.
Australian Retailers Association (ARA) deputy executive director Jennifer Cromarty said the 1.4 per cent drop in February retail sales released by the Australian Bureau of Statistics last week confirmed consumers were still struggling to manage increases to their mortgages from interest rate rises in October, November and December last year.
"The RBA's decision shows impatience and a total disregard for retail trade as a key economic indicator," Cromarty said.
"Disappointing retail trade clearly indicates consumers can't cope with a bombardment of interest rate rises – they need time to properly manage increases to their mortgages without pulling back so much on their spending that retailers and retail workers suffer."
Australian National Retailers Association (ANRA) chief executive Margy Osmond added that the fifth interest rate hike would heighten the already challenging environment Australia’s retailers are facing in 2010.
Osmond said the poor sales result followed on from a 1.1 per cent increase in January, a 0.8 per cent drop in the December peak shopping period and an increase of 1.5 per cent in November – an up and down sales environment that is creating a deal of uncertainty for the retail sector.
“In this environment it is disappointing that the Reserve Bank has seen it fit to make what seems a hasty decision to lift interest rates rather than adopt a wait and see attitude to fully assess the impact of previous increases,” Osmond said.
It is certainly not 'business as usual' for retailers at the moment. Retail sales have been patchy for over a year now and a heavy handed and impatient approach to rate rises from the RBA will stall any further recovery in the sector, drying up any funds that are flowing from retail through the rest of the economy, according to Cromarty.
"Homeowners are struggling to deal with interest rate rises and the Reserve Bank must be mindful of clear signs that consumers are already tightening their belts and limiting their discretionary spend to small comforts like a cheap lunch from a nearby cafe.
"Retailers are Australia's largest employers, and while they struggle with limited access to affordable finance as well as wage bill pressures as a result of the modern award, they must have incentive to hold onto staff. Taking cash away from consumers after over a year of patchy retail sales doesn't encourage employment in the sector," Cromarty said.
A recent survey of 1000 Australians conducted by ANRA and American Express found that while 56 per cent of respondents believe the GFC is over only 39 per cent felt confident enough to spend on discretionary items like clothing, footwear, homewares and whitegoods.