As interest rates go up, people are spending less. Big banks in Australia are seeing a drop in consumer spending, even more than what official numbers show. Let’s dive into the effects of rising interest rates on how consumers behave, highlighting the challenges faced by the economy.
In June, a major bank noticed a 6% decrease in retail spending. Australians are buying significantly fewer goods at shops and department stores, new Australian Bureau of Statistics (ABS) data show. People are trying to manage their budgets by using public transportation to save on petrol, cutting back on eating and drinking, and canceling their streaming subscriptions.
Other banks are also noticing the same trend in consumer spending such as reduced sales in department stores and less spending on clothes and shoes. Spending on shopping, dining, and travel has gone down compared to last year. Experts say this shows that Australians are worried about the higher interest rates and high inflation.
Economists are worried that the decline in consumer spending could have a big impact on the economy. Small and medium-sized stores, especially those selling household goods and clothes, might struggle. Some big retail companies like Harvey Norman have already lowered their earnings expectations because people are spending less. Small businesses are also feeling the pressure from higher costs and fewer customers. Economists warn that this pressure could continue and cause problems.
We’re not sure yet how much these interest rate increases will affect the economy. But experts think we’ll start to see more of an impact as time goes on. As people’s fixed-rate loans change to higher rates, it will affect how much they have to spend. Everyone is talking about the fixed rate cliff, when people on fixed interest rate home loans come to the end of the period when their rate is locked in, and therefore get hit by an unusually high jump in repayments. In the next few months, we’ll see how this affects mortgage holders.
Rising interest rates are making people spend less. The data from banks show that retail spending is going down, and households are adjusting their budgets to cope with the higher cost of living. This also affects small businesses, and economists are worried about the overall economy. Policymakers are keeping a close eye on how people’s spending changes as interest rates continue to go up, hoping to avoid further economic problems.
Maria Papa is a senior property and finance expert specialising in home loans, investment loans, self-employed loans, alt doc loans, car loans, personal loans, and loan protection. She has offices in Sydney, Melbourne, and Manila. If you have questions, you can call Maria at 0430 144 008 or email her at mpapa@maverickfinance.com.au.