The Reserve Bank of Australia has taken the controversial step of raising interest rates once again, but some pockets of the economy are still seeing rampant price rises.
The Reserve Bank of Australia (RBA) today took further measures to reduce inflation by increasing the cash rate to 4.35%. The new RBA Governor Michelle Bullock has made it clear she will have a low tolerance for accepting higher inflation for any longer than the current outlook suggests.
Unfortunately, the grim reality is the goods or services that are still recording high levels of inflation are not under any demand pressure, therefore this cash rate rise will have little impact on the prices of rents, fuel, insurance and utilities. Instead, this rise will be most burdensome for those businesses already at the coal face of the fight against inflation, such as the food and beverage, retail trade and construction sectors. Demand in these sectors has already contracted, and higher interest rates will force consumers and potential home builders/renovators to further rethink their future spending decisions. Most discretionary retailers will be already accepting stock for the Christmas season, and this cash rate rise will have many of them worried about stock levels and sales over what is usually their busiest period.
The food and beverage sector already tops the list of industries ranked by failure rate. Until quite recently, pricing for stock, gas and electricity and labour supply have been the key challenges facing the industry. The industry is now starting to grapple with slowing demand as savings rates dwindle, with this latest increase to the cash rate likely to slow demand in the sector further.
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