The Reserve Bank of Australia (RBA) has left the cash rate target unchanged at 4.35%.
According to the central bank, inflation has fallen “substantially” since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance.
“Headline inflation was 2.8% over the year to the September quarter, down from 3.8% over the year to the June quarter. This was as expected due to declines in fuel and electricity prices in the September quarter. But part of this decline reflects temporary cost of living relief,” it says.
“Abstracting from these effects, underlying inflation (as represented by the trimmed mean) was 3.5% over the year to the September quarter. This was as forecast but is still some way from the 2.5% midpoint of the inflation target.”
Retailers disappointed
The Australian Retailers Association (ARA) says the RBA’s decision is a missed opportunity to support households and businesses who are doing it tough in the lead up to Christmas.
ARA CEO Paul Zahra says retailers continue to battle the dual headwinds of slow spending coupled with higher costs of doing business.
“With CPI at its lowest rate in more than three years, it’s time for the RBA to reduce the pressure on households and businesses by lowering the current cash rate,” he says.
“Small businesses are particularly vulnerable, with ongoing pressure from many directions including higher business costs across the board.”
Mr Zahra says with peak season in full swing, a rate cut would have given retailers much-needed confidence as they look towards Christmas and the New Year.
“Many retailers have been investing heavily in Christmas and the holiday season, including additional staff, new product lines and festive store fit outs,” he says.
“We’re seeing changing shopping habits from Australians as they continue to combat the cost-of-living crisis.
“A record number of shoppers are expected to turn to the Black Friday/Cyber Monday sales to buy Christmas presents to make their household budgets stretch further.
“Given the challenges experienced by the sector this year, retailers will be hoping to see sustained spending beyond that final weekend of November.
“Discretionary retailers make up to two-thirds of their profits in the all-important Christmas trading period hence, it is critical to do well enough to be able to sustain the winter months. Retailers employ tens of thousands of additional casual staff over the peak season providing many with the opportunity to earn additional income.”
Mr Zahra says the ARA will continue to advocate for relief measures from the federal government.
“We need urgent action to ensure Australia’s $430 billion retail economy not only survives but thrives,” he says.
“It’s essential that retailers, both small and large, have the confidence to continue investing in their businesses over the coming months.”
What’s next
Taking account of recent data and the updated forecasts, the RBA says its assessment is that policy is currently restrictive and working broadly as anticipated.
“But there are uncertainties,” it says. “The central projection is for growth in household consumption to increase from the second half of this year as income growth picks up – and there is tentative evidence of an increase in spending in the September quarter.
“But there is a risk that any pick-up is slower than expected, resulting in continued subdued output growth and a sharper deterioration in the labour market.
“More broadly, there are uncertainties regarding the lags in the effect of monetary policy and how firms’ pricing decisions and wages will respond to the slow growth in the economy and weak productivity outcomes at a time of excess demand, and while conditions in the labour market remain tight.”
The RBA says, “sustainably returning inflation to target within a reasonable timeframe remains the Board’s highest priority”.
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