There is also growing evidence in the nation’s shopping malls of the pain being felt by ordinary shoppers from the combination of high interest rates and inflation.
No-frills retailer Best&Less revealed on Tuesday that sales and foot traffic had softened over recent weeks.
It reported that between May 15 and June 18,total sales across its store network had fallen by 11.7 per cent compared to the same period last year. On a like-for-like basis,sales were down 13.2 per cent with online purchases plummeting by 19.6 per cent.
Research by the UBS Evidence Lab also points to the pain from high interest rates.
Based on a survey of 1000 people over the last fortnight of May,it found a growing proportion of spending is being taken by up utilities,rent and insurance.
Among spending in Westfield shopping centres,the survey found people were offsetting expenditure on must-haves by slashing expected spending in area including services,eating out and electrical goods.
UBS analysts said low income earners were most exposed but middle income households were also feeling the pinch.
“The consumer results show how many low income consumers have now run out of savings,and are increasingly having to borrow from others,or sell their belongings,to fund daily spending,” they said.
“With cost of living categories unable to be scaled back,consumers in ‘mortgage belt’ Australia are telling us that they expect to sharply reduce their spending on ‘fun’ categories,such as entertainment,recreation,eating out,takeaway food and international travel.”
RBA deputy governor Michele Bullock warned that to bring inflation down,unemployment would likely have to climb to around 4.5 per cent.
“Unemployment will have to rise,” she said on Tuesday.
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Bullock said the bank was prepared for inflation - currently at 7 per cent –to fall back to the RBA’s 2 to 3 per cent target band more slowly than many other central banks as this would keep more people in work.
But if inflation did not come down,the risks to the economy would grow.
“Price stability is a prerequisite for a strong economy and full employment. Indeed,it is very difficult to sustain full employment without price stability,” she said.
“If high inflation were to become entrenched in people’s expectations,it would be very costly to reduce later,involving even higher interest rates and a larger rise in unemployment.
“A deep and long-lasting recession would be likely,which would mean a substantial rise in the unemployment rate. Our goal is to return the labour market - and the market for goods and services - back to a level more consistent with full employment.”
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