Rate rise could be final straw for lower income households

Supermarket giant Coles has locked in prices on 150 more everyday products to the end of January as another interest rate rise on Tuesday threatens to put the squeeze on low-income households.

“We know it’s been a really tough year for many of our customers and they are looking for prices they can rely on,” Coles chief executive of commercial and express Leah Weckert said.

Retailers have seen incredibly buoyant trading conditions despite consecutive rate rises. Credit:

The Reserve Bank aims to finally throw cold water on consumer spending with what economists are tipping will be a 50 basis point rise in the cash rate, enough “to avoid underwhelming the market at a time of extreme nervousness”, Citi Group analysts said last week.

“The view [on the rate rise] has come from recent global events that include the extremely large amount of fiscal stimulus in the UK and upwardly revised policy rate expectations for major central banks.”

Such a rise would weigh heavily on Australian consumers at a time when retail analysts say shoppers, particularly those earning less than $50,000 a year, are tempering their intentions to spend.

The latest UBS quarterly consumer survey shows while the nation’s wealthiest Australians still have positive sentiments about the economy and are expected to keep spending, lower income earners now have an “outright negative” financial outlook.

Coles has locked in prices on more than 100 everyday products to the end of January ahead of a likely interest rate rise.Credit:Paul Jeffers

“Cost-of-living pressures are forcing consumers to spend more on essentials, with food, fuel, utility and healthcare costs impacting most – this disproportionately hurts lower-income earners,” UBS strategist Richard Schellbach wrote in a note to clients.

“Middle-income earners tend to be still positive on most measures, although with less conviction than was shown in previous surveys this year.”

Consumers may also move away from buying sustainable goods as budget-conscious shoppers have to focus on value, UBS data suggested.

“The results suggest that cost-of-living pressures may be forcing some consumers to limit their spend on more socially responsible goods,” analyst Camille Wynter said.

Australian Retailers Association boss Paul Zahra said shoppers’ willingness to open their wallets so far this year had been “truly remarkable”, but he acknowledged the sector had not fully seen the impact of rate rises flow through the economy.

“There is likely to be a lag effect from current inflationary conditions,” he said. “We could see a softening of sales as we enter 2023.”

Other major retailers, however, are unfazed about spending in the lead-up to the festive season, expressing optimism that their offerings match consumers’ willingness to spend.

“We are really comfortable with how we are going to deliver our plans for Christmas. We will just focus on what we can control and what we can deliver,” the boss of Peter Alexander and Smiggle owner Premier Investments, Richard Murray, said when discussing the company’s financial results last week.

“We can manage the risks of a slowdown if there is one in the second half … [and] we have to manage it better than our competitors.”

Myer, David Jones and Dan Murphy’s operator Endeavour Group have also expressed similar optimism as August retail spending results released last week show total national sales for the month were up 19.2 per cent on this time last year.

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