In response to persistent high inflation, the Reserve Bank of Australia (RBA) has made a bold decision to increase the cash rate by 25 basis points, increasing it to 4.35 percent. This move follows the RBA’s prior indication that it would implement rate hikes if inflation did not show signs of slowing as anticipated. The objective behind this rate increase is to expedite a return of inflation to the target range within a reasonable period.
What Is the Impact of This on Different Sectors?
The rate hike is not likely to have a significant impact on goods and services characterised by high inflation but low consumer demand, such as rents, insurance, utilities, and fuel. Instead, businesses already struggling with rising prices, particularly those in the food and beverage, retail and construction sectors will feel the impact the most. These sectors have already experienced a decline in demand, adding to their challenges. In the run-up to the busy Christmas season, discretionary retailers are particularly concerned about their stock levels and sales, given the potential implications of this rate hike in consumer behaviour.
Consumer Behaviour Reassessment
As a result of the rate hike, consumers may find themselves reevaluating their spending plans. Higher borrowing costs might prompt individuals to be more cautious about their financial decisions, especially when it comes to making large purchases or investing in property.
Kreston Stanley Williamson
*Correct as of 8 November 2023
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