The Reserve Bank of Australia this week increased the cash rate target by 25 basis points to 4.1 per cent. Industry bodies warn the increase will dent the retail sector, with businesses facing a fresh surge in supply chain costs driven by escalating global oil prices.

Double hit

With fuel prices surging, inflation remaining stubborn across essential goods and services, and consumer confidence weak, households and businesses face a perfect storm o rising costs and weakened resilience, says CPA Australia.

Gavan Ord, Business and Investment Lead at CPA Australia, said fuel reliant businesses are already feeling the pain, with transport, trades, logistics, agriculture and regional operators among the hardest hit.

“These businesses are feeling bruised by higher fuel costs that are flowing through every part of their operations,” Mr Ord said. “Fuel isn’t optional – it’s fundamental – and when prices spike, costs rise immediately with very little room to hide.

“For many small businesses, fuel is now one of their largest and most volatile expenses. Combined with higher interest rates and persistent inflation, it’s making an already difficult situation worse.”

ARC CEO, Chris Rodwell said retailers are confronting a difficult combination of rising costs and pressure on consumer spending.

“Retail is again facing a double hit – rising supply chain costs from the global oil shock and a rate rise that will likely further squeeze household spending,” he said.

Escalating pressures

Mr Rodwell said the retail sector had endured a challenging adjustment period in the past few years as households responded to higher interest rates and rising living costs following the pandemic.

“Retail businesses have been operating under extremely tight margins as the cost of doing business has continued to rise,” he said.

“Through the second half of last year and into January this year, we began to see stable conditions return. Growth was not extraordinary, but it was solid and steady. Consumers remained highly value-conscious, with spending concentrated around promotions and discounting as households looked to stretch their budgets. That meant retailers were working harder to maintain margins, even as trading conditions began to stabilise,” he said.

The latest Xero Small Business Insights (XSBI) data shows the final months of 2025 were the strongest in years. In the December quarter sales growth recorded the best result since mid-2023 (+6.7% y/y), jobs growth was the strongest in two years (+3.4% y/y) and small businesses were paid quicker than in any other quarter in the history of this series (23.9 days).

“Importantly, this data pre-dates the increase in the official cash rate in February and the start of the conflict in the Middle East,” said Xero Economist Louise Southall.

“[This week’s] second consecutive lift in the cash rate by the RBA Board puts that progress in jeopardy.”

Ms Southall said it’s easy for small business owners to feel overwhelmed and powerless during periods of such high uncertainty.

“It’s more important than ever for owners to focus on the things they can control, and cut out the noise of what they can’t,” she said. “That means closely managing cash flow and forecasting well ahead, particularly with Payday Super requirements on the horizon.”

Low confidence

Mr Ord said the latest rate rise hits at a time when confidence across the economy is already low.

“Households are pulling back, businesses are losing confidence, and yet costs keep rising,” he said. “This rate increase adds fresh pressure just as many were hoping for some relief.”

CPA Australia warned that consumers should brace for flow on effects.

“When costs rise this sharply and this quickly, prices at the checkout inevitably follow,” Mr Ord said. “Many small businesses will be forced to pass on higher costs, while others will delay investment, reduce services or scale back employment.”

Mr Rodwell warns higher interest rates can reduce household disposable income and confidence.

“The risk is retailers face rising cost inputs at the same time consumer spending could slow again,” he said.

“When the retail sector comes under pressure, the broader economy feels it very quickly,” Mr Rodwell said.