The Reserve Bank of Australia’s tough stance on refusing to lower the cash rate, and in effect ruling out the possibility of a reduction for the remainder of the year, is forcing businesses and consumers to the breaking point.

Even Treasurer Jim Chalmers has said that higher interest rates guided by the central bank were “smashing” the economy, though he added that that does not amount to him telling them what they should or should not be doing.

This week, GDP figures will be released that will outline just how much of an impact high interest rates is having on the country, with Chamers adding that “it would be no surprise at all if the national accounts on Wednesday show growth is soft and subdued.”

Annual growth in the private sector wages bill slowed to 5.3 per cent in the June quarter – the lowest in two years – from 6.6 per cent in March, the Australian Bureau of Statistics said on Monday.

Analysts surveyed by Bloomberg forecast the economy expanded by just 0.2 per cent in the three months to June 30, which would cause annual GDP growth to slow to 0.9 per cent, from 1.1 per cent.

RBA deputy governor Andrew Hauser, echoing governor Michele Bullock’s predictions, said last week that the central bank would not follow the US Federal Reserve and cut interest rates this year because inflation was still too high and the 4.35 per cent cash rate was not very restrictive by global standards, reported the Australian Financial Review.

Household spending

The fall in wages growth is welcome news for the RBA. The central bank has been vocal that recent rates of wages growth were inconsistent with its 2 to 3 per cent inflation target.

Among the sectors recording the weakest annual wages growth were retail (3.3 per cent), wholesale trade (1.6 per cent) and construction (4.6 per cent).

There were also sectors that saw a fall in profits as consumers held back on discretionary spending, and rising costs tempered down the demand for new homes.

Sales volumes in the hospitality sector also fell by 3.1 per cent in the 12 months to June.

With earnings in the construction sector down 0.7 per cent over the year to June, Master Builders Australia chief executive Denita Wawn said the industry had experienced a 40 per cent increase in construction costs since 2019, as well as a significant increase in build times.

“This compounding effect has been difficult for many builders who have been locked into fixed price contracts and have had to absorb these additional costs,” said Wawn.

The consumer spending slowdown is evident in other recently released data too. The Australian Bureau of Statistics reported that retail trade for July 2024 was unchanged from June. Analysts had expected a 0.3 per cent rise after growth of 0.5 per cent in both June and May.

Australian Retailers are fearing a grim forecast for the remainder of the year, especially over the Christmas period, after those figures were released. “The industry is at the mercy of consumer sentiment; that’s just the nature of retail. We need policymakers to loosen the reins somewhere or we’re in for a tough Christmas trading period,” said National Retail Association interim chief executive Lindsay Carroll.