CreditorWatch’s chief economist Anneke Thompson delivered her monthly take on the economy and business landscape, including the latest retail trade and employment figures, inflation data, as well as business and consumer sentiment.
Below are the highlights.
November witnessed a significant dip in consumer confidence following the Reserve Bank of Australia's (RBA) decision to increase the cash rate post-Melbourne Cup. Contrary to expectations two months ago, when a halt to monetary policy tightening seemed likely, the RBA had to act in response to unexpected inflation spikes in the September quarter.
This decline in consumer sentiment coincided with a 0.2% drop in retail sales, partially linked to customers delaying major purchases until Black Friday. However, a consecutive decrease in spending in cafes, food, and takeaway services, unaffected by these sales, highlights a reduced discretionary spending capability compared to last year.
RBA gains ground on inflation
Recent monthly Consumer Price Index (CPI) data show promising signs of inflation control, with the monthly CPI, excluding volatile items, down to 5.1% from 5.5%. Similarly, seasonally adjusted CPI fell to 4.8%, the first dip below 5% since February 2022. Despite a slight rise in food and non-alcoholic inflation, housing inflation has decreased due to government interventions.
Given these trends combined with subdued consumer spending and rising unemployment, the RBA is likely to maintain the cash rate in December, a potential relief for retailers and holiday-goers, though high-interest rates may persist until at least the third quarter of 2024.
Unemployment rises amid population growth
Despite a solid increase in employment numbers in October, unemployment edged up from 3.6% to 3.7% due to population growth. The yearly employment growth of 3.0% contrasts with a 13.2% rise in unemployed individuals, indicating an easing in worker shortages.
Retail trade awaits Black Friday boost
With retail sales down 0.2% in October, expectations are high for a surge during Black Friday sales, especially in discretionary categories. However, the food and beverage sector, immune to Black Friday effects, saw a second monthly decline in spending, raising concerns as the industry already faces significant external administration and payment arrears.
Business and consumer sentiment wanes
Business confidence and consumer sentiment surveys from NAB and Westpac reflect growing pessimism. Weak consumer confidence, especially after the RBA's rate hike, aligns with CreditorWatch’s forecast of a rise in business failure rates over the next year, potentially impacting overall business sentiment.
Christmas spending outlook gloomy
A Westpac survey indicates a cautious approach to Christmas spending, with 40% planning to spend less on gifts. Despite expected strong Black Friday sales, December spending might dwindle as consumers avoid last-minute full-priced purchases.
Interest rate challenges
The RBA's rate hike to 4.35% aims to curb inflation, but its impact might be limited on sectors already struggling with high costs, like food and beverage, retail trade, and construction. With Australia's unique challenges, including high immigration and unaffected older homeowners, taming inflation might prove more complex.
Global inflation trends
Internationally, inflation rates are declining, with the Euro Area, the UK, and the USA showing promising figures. However, Australia’s large immigration numbers could pose additional challenges in managing inflation compared to these economies.