PHOTO: The rise in spending in the lead up to Christmas comes as the RBA continues to battle persistent inflation, focusing on reducing demand in the economy. PUBLIC DOMAIN PICTURES
Anticipated heightened spending leading up to Christmas raises the prospect of another interest rate hike by the Reserve Bank, despite prevailing inflation and previous rate increases. Recent statistics from the Australian Bureau of Statistics indicate a slight dip in overall retail spending for October, with an increase of 1.2% compared to the previous year. Although October saw a temporary decline in retail turnover, November is expected to witness robust spending as savvy consumers, mindful of costs, accelerate their Christmas shopping and seek bargains during the Black Friday weekend.
Projections from the Australian Retailers Association estimate Australians to spend approximately $6.36 billion during the Black Friday weekend alone, setting the stage for record-breaking sales. Despite a lukewarm pre-Christmas spending projection, consumers are expected to capitalize on discounts amid financial pressures. According to a Finder survey, the average shopper plans to spend $727 across events like Black Friday, Cyber Monday, and Boxing Day sales. Interestingly, Generation Y shoppers are poised to outspend other demographics, with millennials planning an average expenditure of $858 on discounted items, compared to the $580 expected from the average Baby Boomer.
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This surge in spending poses a challenge for the Reserve Bank, which is grappling with persistent inflation and aiming to curtail demand in the economy. The recent interest rate hike in response to higher-than-expected inflation data signals the bank’s commitment to addressing this issue. Updated forecasts suggest the possibility of one or two more rate increases to bring inflation back within the target range of 2-3% by the end of 2025.
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However, the timing and necessity of further rate hikes remain subjects of debate. While the minutes from the recent board meeting emphasize the bank’s focus on reducing demand to alleviate inflation, market opinions vary. Major banks, such as NAB and ANZ, expect a data-dependent approach, with the next rate hike potentially occurring in February. Meanwhile, CBA’s Gareth Aird suggests the cash rate may have peaked at 4.35%, and Westpac’s Luci Ellis speculates that the next move could be a rate cut in the latter half of 2024.
Despite strong retail spending, market expectations for a rate rise in December remain low, with the ASX RBA Rate Indicator assigning a 10% chance of a hike next month.