On Tuesday, The Reserve Bank increased the cash rate by 25 basis points to 4.85 per cent – its highest level since November 2008 and the fifth increase this year.

Retailers and manufacturers have warned the latest interest rate rise will further squeeze household spending during the crucial Black Friday and Christmas trading period.

Fresh blow to retailers

Glenn Fahey, Chief Economist Glenn Fahey at the Australian Retail Council (ARC) said the increase would compound pressure on businesses already facing higher borrowing, freight, wages and operating costs, while leaving customers with less to spend.

“Another rate rise could hardly come at a more difficult time for retailers and the households they serve,” Mr Fahey said.

“There will be families now reassessing their Christmas budgets, while retailers are heading into their most important trading period with stock ordered, staff and bills to pay.”

Mr Fahey said the burden of bringing inflation under control was falling unevenly across the community.

“There is a fundamental unfairness in repeatedly asking the same households and businesses to shoulder the inflation challenge,” he said.

“The more we rely on interest rates alone, the more pressure we put on those already stretched.

“Governments must act now to reduce unnecessary business costs, cut red tape and make it easier for businesses to invest and grow. The longer these pressures go unaddressed, the more we leave mortgage holders and small businesses to carry the burden.”

Little buffer for small business

The Council of Small Business Organisations Australia (COSBOA) has highlighted the threefold impact of the RBA’s decision, with small businesses facing further pressure at a time when they have little financial buffer left.

Skye Cappuccio, COSBOA CEO says customers will spend less, business loans will cost more and, for many owners, their home mortgage will cost more too.

“We recognise the difficult job the Reserve Bank of Australia (RBA) has. At the same time, governments need to do everything they can to ease other pressures on small business, starting with not adding to them,” she said.

“Small businesses, particularly in retail, hospitality and personal services, will be among the first to feel the impact. They will see it at the till.”

The second impact will be higher business borrowing costs, with any increase passed on by lenders adding to costs already elevated by previous rate rises.

The third impact is particularly acute for small business owners, whose business and household finances are often closely connected. Around half of small business credit is secured against residential property, meaning many owners can be exposed to higher interest costs across both their business and household finances.

Ms Cappuccio said the federal government’s upcoming Mid-Year Economic and Fiscal Outlook (MYEFO) provides an opportunity to demonstrate spending restraint and take practical action to reduce cost pressures on small business and improve productivity.

“We need to see reduced government spending, alongside practical steps to help small businesses without adding further pressure to the Budget,” she said.

Turning point for policy settings

Innes Willox, Chief Executive of the national employer association, Australian Industry Group said the RBA’s decision to raise the cash rate is “necessary but painful”, adding the decision must be a turning point for economic policy settings if we are to avoid pushing business and households to the brink.

“The one thing the Government can control is its spending and it must rein it in now to stop fuelling an inflation spiral,” he said.

“Much of our economy feels like we are in are in a recession. Businesses across the spectrum have reported that October was a particularly difficult month. We must take immediate steps to avoid finding ourselves in this situation again.

“Government cannot credibly sheet the blame to external factors. While the global energy crisis has contributed, inflation was already too high before the crisis, and much of what we are now experiencing is clearly home-grown.”

Mr Willox says it’s “increasingly irresponsible” for government to keep spending while the RBA battles against inflation, adding that spending growth needs to slow in next month’s MYEFO, and again in the 2027 budget.

“Policy attention must then immediately turn to the malaise that has delivered Australia nearly seven years without productivity growth – the longest drought on record,” he said.

“The solution for our productivity crisis is well-known: regulatory and tax reform that will reduce barriers to business efficiency and investment.

“Australia needs to re-learn the art of genuine regulatory and tax reform.”

Productivity must be at the heart of economic response

The Australian Food and Grocery Council says lifting Australia’s productivity is critical to easing inflationary pressures and creating the conditions for businesses to invest and grow.

The stakes are particularly high for food and grocery manufacturing, Australia’s largest manufacturing sector, with $182.6 billion in turnover and 301,000 employees. 

In a submission to the Productivity Commission, AFGC proposed three changes to non-financial reporting: 

• Cut duplication by removing requirements for information businesses already provide. 
• Collect once, use many times by allowing equivalent information to be reused across government. 
• Coordinate regulation through a government-wide roadmap covering reporting requirements and timing. 

“We need policy settings that make Australia a better place to invest, said Colm Maguire, AFGC CEO.

“That means lifting productivity, cutting unnecessary regulatory duplication and supporting businesses to put capital into productive assets.”