Australian retailers have been dealt a blow just weeks before Black Friday and the Christmas shopping rush, with a fresh surge in inflation threatening to squeeze household budgets and force consumers to become even more selective with their spending.

The latest Consumer Price Index figures released by the Australian Bureau of Statistics on Wednesday 28 October show annual inflation climbed to 4.3% in September, up from 4% in August. Underlying inflation, closely watched by the Reserve Bank of Australia, also increased to 3.6%. 

The timing is terrible for retailers counting on November discounting and December gift buying to deliver a strong finish to the year.

With Black Friday and Cyber Monday approaching, electronics, appliance, furniture and other discretionary retailers face the prospect of consumers redirecting more of their income towards essential expenses.

Higher living costs are already taking a toll. Transport prices rose 8.7% over the year to September, while automotive fuel prices surged 9.4% in the month alone. Housing costs increased 5.2% annually, adding further pressure to household finances. 

The inflation surprise also complicates the outlook for interest rates. Markets had been anticipating another Reserve Bank rate increase, the fifth of the year, with pricing suggesting a greater than 60% chance of a November hike before the latest figures were released, according to ABC News. 

The latest inflation data could make the traditional Black Friday discounting battle even more difficult. Retailers must offer attractive prices to bring shoppers through the door while protecting margins which are already under pressure from higher costs and online competition.

Christmas remains a critical opportunity to generate sales, but the combination of rising living costs and potential interest rate increases threatens to make consumers more price-conscious.