Retail bosses and corporate chiefs hope consumers can cope with rate rise jump

Top retail and business chiefs react with a mix of stoicism and resignation over the RBA’s surprise 0.5 points rate hike, hoping consumers can cope as budgets tighten.

Nick Scali CEO Anthony Scali believes many consumers have been prepared for a cycle of interest rate rises and will be resilient. Picture by Chris Pavlich

Australian business leaders and retailers greeted the surprise 50 basis point hike in official interest rates by the Reserve Bank with a mix of stoicism and resignation, as they prepare for the whole new world of rising interest rates, rampant inflation and tighter household budgets.

Retail billionaire Gerry Harvey, who chairs the $5.3bn retail heavyweight Harvey Norman, told The Australian shortly after the RBA’s announcement the official cash rate would leap to 0.85 per cent from 0.35 per cent that some consumers could be “frightened” and spooked” by the higher than expected rise.

“We are in the process now of inflation rate and interest rate rises, and obviously consumers are going to be frightened a bit, so yes, it’s going to have that effect,” the Harvey Norman co-founder said.

“In terms of the average consumer, people will be spooked a little bit with that because you‘ve got an interest, now followed by another one, followed by another one and another.

“And then you have inflation that needs to be checked, but may not be checked and where does that all leave us?

“Fortunately, I’ve been in business for 60 years and I’ve seen it all before, on a number of occasions, and we’ve survived in the past.”

Anthony Scali, who runs furniture retailer Nick Scali, believed consumers were showing some resilience and fortitude heading into the new rising interest rate cycle as they had been mentally prepared for tightening interest rates this year.

“Consumers seem to me to be pretty resilient. Yes, 50 basis points is a big move in one go and I think everyone was expecting 40 basis points, but historically interest rates are still fairly low.

“I think unemployment is so low and wages are increasing, and so some consumers might not be so concerned.”

The industry peak body representing the nation’s $320bn retail sector was more strident, labelling as “heavy handed” the RBA’s decision to lift rates by a stronger than expected 50 basis points, saying the central bank should have waited longer for a recent rate rise to flow through the economy.

National Retail Association CEO Dominique Lamb said the RBA should have waited for at least a full month’s data to judge the impact of the previous rate rise before moving again so quickly.

“We know that the inflationary pressures in the economy are being driven by external factors such as skyrocketing fuel and power prices, as well as the impact of recent flooding on fresh food.

“These are already having a significant impact on spending and on the viability of many retail businesses.”

Ms Lamb said the RBA board should have waited at least a month to see the impact of its previous decision before moving again.

“Many business owners believed the promises of the RBA not to move on interest rates until at least (the end of) 2023. For some, it was the assurance that helped them to get by through Covid, floods and other disasters. This decision today will almost certainly be the last straw for many of them.”

Dominique Lamb, CEO of the National Retail Association, believes the RBA should have slowed down the pace of rate rises. Picture: Liam Kidston

Australian Retailers Association chief executive Paul Zahra said many of his members appreciated the need to put a lid on inflation but the rate rise was a “blow for businesses” as they struggle with disrupted supply chains and labour shortages.

“While we appreciate the RBA is attempting to curb inflationary pressures, this rate rise is a blow for businesses who are managing cost pressures from every angle. From supply chain delays, staff shortages, and the rising cost of fuel and materials, many of the cost pressures this year are unprecedented, leaving some businesses struggling to keep their heads above water.”

Innes Willox, CEO of the national employer association Ai Group, said the higher-than-expected increase in interest rates while testimony to the strength of the economy, is also a sober pointer to the sharp pick up in inflationary pressures – most recently from energy costs.

“It also highlights the risk of further interest rate rises if there is a large increase in the upcoming national wage case decision.

“The rate rise emphasises the importance of lifting the supply capacity of the economy by raising productivity, accelerating the resumption of skilled immigration; and making further progress in lifting workforce participation. There is no time to lose,” Mr Willox said.

The RBA’s decision to hike the cash rate for a second time in two months by 50 basis points to 0.85 per cent reveals the mounting stresses on the economy, said ACCI CEO Andrew McKellar.

“While the half a per cent increase was more aggressive than what many analysts predicted, the decisive action taken by the Reserve Bank was understandable to normalise monetary settings and tame inflationary pressures,” he said.

“Inflation is hitting businesses especially hard, particularly surging energy prices.

“Future consumer spending is also at risk. Although we’ve seen strong growth in household budgets through the pandemic, increasing inflationary pressures are likely to trim consumer spending in the second half of 2022.”

The hefty rate hike triggered a share sell off on the ASX, which closed 1.5 per cent lower at 7095.7 on Tuesday. The consumer discretionary index dropped 2.3 per cent, led by PointsBet, IDP Education, Breville and Wesfarmers.