The Reserve Bank of Australia has lifted interest rates to their highest level in 15 years, increasing rates by 25 basis points to 4.6%.
The Australian Retail Council (ARC) has warned another interest rate rise will further squeeze household budgets and compound the rising freight and supply-chain costs already confronting retailers as higher fuel prices flow through the economy ahead of the peak trading season.
ARC Chief Economist Glenn Fahey says the latest increase – the fourth this year – couldn’t come at a worse time for retailers and households.
“The Reserve Bank has a difficult job and there’s no question inflation remains too high. However, a fourth interest rate rise this year comes as households and businesses are already confronting significantly higher petrol and diesel prices,” he says.
Higher supply chain costs have been weighing on retailers for much of the year, notes the ARC. The latest ABS figures show road freight transport prices surged 15.5% in the June quarter, the largest quarterly increase since the series began in 1997, driven by higher fuel surcharges.
“Households are now facing higher costs at the bowser and in their mortgage repayments. At the same time, retailers are paying more for finance, freight and deliveries as increased fuel costs flow through supply chains,” says Mr Fahey.
“Retail spending has remained resilient, but there’s a point where it becomes fragile. The combination of another rate rise and sharply higher fuel costs risks taking momentum out of consumer spending just as retailers enter the most important trading period of the year.”
Mr Fahey says retailers are also facing continued pressure across wages, energy, insurance, leasing and compliance.
“Consumers are shopping carefully, waiting for promotions and looking closely at value. Retailers can’t pass all of their increased costs on especially in peak sales periods, so many are absorbing them through tighter margins,” he says.
“Many discretionary retailers rely heavily on Black Friday and Christmas to rebuild cash reserves, making the timing of this rate rise seriously difficult.”
The pressure is showing up in retail insolvency numbers, too. The latest provisional ASIC figures show 1006 retail companies entered external administration or had a controller appointed in 2025–26, up 15.5% from 871 the previous financial year. It’s also more than triple the amount in 2021–22 and an increase of 215% in four years.
“The government must recognise how difficult the business operating environment has become and focus on lifting productivity, reducing the cost of doing business and cutting red tape,” says Mr Fahey.
Food for thought
Looking at the foodservice landscape, Gimantha Jayasinghe, Senior Vice President of Foodservice APAC at Circana, says another rate rise is unlikely to make Australians abandon foodservice, but it could make them think harder about how often they visit restaurants, bars and cafes, and which occasions they choose to keep.
“Foodservice remains an important part of everyday life for Australians, but another interest rate rise [will] add to the pressure on household budgets and make discretionary spending decisions more considered,” he says.
“Rather than stopping eating out altogether, consumers are more likely to adapt, visiting less often, trading down, seeking out promotions or becoming more selective about when and where they spend.
“That makes everyday occasions particularly important. A coffee, quick lunch, bakery visit or afternoon snack may be a relatively small purchase, but collectively these frequent occasions are the foundation of foodservice demand and can be among the first to be reconsidered when budgets are squeezed.”
At the same, Mr Jayasinghe says the way Australians engage with foodservice is changing rapidly.
“Circana’s CREST data, which is used to track what Australians eat and drink out of home, shows digital payments now account for 65% of foodservice visits, up from just 15% in 2010, while cash has fallen from 71% to 25%,” he says.
“Digital ordering and loyalty are also becoming increasingly embedded in consumer behaviour. Traffic through self-service kiosks has grown 57% since 2023, mobile app ordering for delivery and pickup is up 24%, and engagement with operators’ loyalty programs has increased 16.3% over the past three years.
“In a higher interest-rate environment, these channels give operators more opportunities to demonstrate value, reward loyalty and encourage repeat visits. The priority isn’t simply getting consumers to spend more each time they visit but giving them a reason to keep coming back.”
