Australian Retailers Association’s prediction regarding Christmas shopping is at odds with a recent survey by Westpac which found the exact opposite.
While economists are concerned about inflation, recent surveys have not been wrong.
While rising interest rates and high inflation is out there, it’s not affecting household spending according to ARA.
A record $6.2 billion was tipped to be spent in four days as people kicked off their Christmas shopping. Roy Morgan research estimated their spending to go up to $64 billion in the lead up to Christmas.
ARA CEO Paul Zahra expressed his confidence that this spending will help “boost [retailers’] dwindling cash reserves” as they have experienced “massive increases in the cost of doing business over the past two years” and are still in recovery mode.
Westpac, on the other hand, found almost 40 per cent of its survey participants looking to cut Christmas spending, a record high.
In any case, economists worry that any extravagance in spending (if any) is temporary and will not continue throughout 2023, closing the gap between consumer confidence and actual spending.
This matters because average household spending affects the economy as a whole, determining whether the Reserve Bank may stop raising rates sooner rather than later.
Household consumption accounts for about two thirds of domestic demand – a key reason for strong economic growth in the June quarter.
The solid spending streak that consumers display is surprising since official interest rates have jumped from 0.1% to 2.85% since May.
Markets estimate that RBA governor Philip Lowe will raise rates again to 3.1 per cent next month, the eighth consecutive rate rise this year, on top of the worst inflation in three decades.
Interest rates takes a long time to affect the real economy so what makes economists so sure of the upcoming downturn?
Financial markets react almost instantly to any change in the interest rate outlook, and house prices also respond promptly because rising rates cause banks to slash how much they’ll lend homebuyers.
But banks take months to adjust customers’ mortgage repayments, which means most borrowers are still a long way from feeling the full effect of higher rates.
There is also an unusually large number of people on ultra-cheap fixed-rate loans who won’t feel the sting until their fixed term expires, and they roll over to a higher rate (most of these loans will expire in the next two years).
Slowly but surely, higher interest will inevitably force many people to cut their spending.
With surveys saying one thing, and economists another, it’s safe to bet that next year Aussies might have to make do with mere window-shopping.
