By Craig Zammit
SYDNEY: The Reserve Bank of Australia (RBA) has placed further pressure on Australian retailers by raising interest rates to 6.25 per cent yesterday, which represents the fourth rate increase since Prime Minister John Howard promised to keep rates low at the last election.
Howard, who recently described the current economy as ‘overheating’, defended the RBA’s decision by stating the need to increase rates in an attempt to stave the risk of higher inflation. The RBA pointed to global economic expansion, growth in demand and spending, and strong wages growth as the reasons for the increase.
“I never wanted interest rates for housing to go up… both as a Prime Minister and as an individual,” Prime Minister Howard told the Australian Financial Review yesterday.
“But I have to accept the economic reality that occasionally a central bank does find it necessary to lift interest rates in the name of keeping inflation in check.”
However, Australian retailers do not share Howard’s optimism for the economy, as Australian Retailers Association CEO, David Edwards, expressed in a recent statement.
“Retail turnover is increasingly very slow on the east coast, and CPI movement in major sectors, such as clothing and homewares, is very low or even negative," said Edwards.
“Small retailers are doing it tough with margins being squeezed by spiralling rent increase and the recent announced record wage rise. This is a dangerous environment to increase interest rates. The only result can be price increases or cost reductions, which means lost jobs."
Retail turnover for August and September 2006 grew by only 0.2 per cent and 0.1 per cent respectively, which is hardly an ‘overheating’ economy from the retailers’ perspective, according to Edwards.
One such retailer who might be affected by the interest rate hike, Port Stephens Retravision proprietor, Danny Unthank, shares Edwards’ position on the state of the economy and questions the timing of the increase.
“They all say that [the interest rate rise] is due to the economy going well, so I’d just like to know how, with the industry suffering badly at the moment, how they can increase interest rates? I feel a whole lot of people have already been starved of extra cash from previous interest rate increases and from fuel going through the roof.
“I believe someone has got it totally wrong, because if you speak to anyone in retail, their outlook is quite gloomy. I just can’t see how the Reserve Bank can increase rates when I believe the economy isn’t as strong as they tell us.”
Unthank feels that with less money in the pockets of consumers, big-ticket items may not be in the Christmas trolleys over the coming months.
“I don’t think there is enough excess cash out there, so I believe the winners this year will be the kettle and toaster manufacturers – they might be found in this years Christmas stockings
“In the industry at the moment, we have some great technology and some great new products on the market, but I don’t think a lot of suppliers are going to get their returns on them,” he said.
Finally, Unthank challenged the Reserve Bank itself to issue a letter of explanation regarding the recent rate hikes.
“I would love any politician or member of the Reserve Bank to give me a call to fill me in on how they come up with these decisions, or where the magic money tree is located – because I would love to know.”