Consumers cut spending as prices rise

As the cost of items in the supermarket trolley continues to grow Australians are cutting back on non essential spending.

April had the dubious distinction of having the largest monthly fall in a year posted during the month. Retail trade fell by 0.2 per cent compared to March. This amounted to over $20 billion compared to March.

Westpac said today "With food and other price rises eroding purchasing power in the retail sector, the result has been a sudden slowdown in sales volumes" Stephen Roberts, Lehman Brothers chief economist, saw the April retail figures released by the RBA as being very soft and well below market expectation for a modest rise.

Current high interest rates were having an impact on consumer spending, with consumers cutting back on non essential spending.

The disappointing sales figures have forced retailers to commence sales ASAP.

1st June is the first day of winter, yet sale signs cover the windows of almost every retail clothes shop as the economy slows.

Extended trading hours and discount prices are the order of the day.

The Australian Retailers Association, that represents in excess of 5000 retailers country wide, were struggling with tough economic conditions, including high interest rates and higher grocery and petrol prices.

ARA spokesman Michael Lonie said "Quite clearly there's been a downturn and the retailers are not into full sale mode but are definitely looking at discounting"

Meanwhile the retail data comes at a time when the Reserve Bank of Australia will be holding its monthly board meeting to consider interest rates. Opinion is that the RBA will leave the official cash rate unchanged at 7.25 per cent. This will be for the third month in a row, and is indicative of slow economic growth.

Mr Roberts said "We have plenty of evidence that (interest-rate rises) are working particularly when you look at discretionary spending"

"That means the RBA may read through the high inflation numbers and keep the cash rate on hold for some time "

Regarding economic growth, data due is expected to show a slowing to 2.9 per cent year- on- year in the March quarter. This is down from the 3.9 per cent in the December quarter.

What is disturbing is the ongoing battle with inflation. The RBA sets interest rates to try and keep an upper limit of 3 per cent and a lower limit of 2 per cent. However in the March quarter inflation jumped to 4.2 per cent.

Published on June 6-rd, 2008 in Financial Planning
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.

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