Spending bonanza to carry Christmas before ‘wiser wallets’ in 2023

Australians are shrugging off the soaring cost of living and heading to the shops in droves before the Christmas holidays, with November shaping up as the biggest month of the year.

Deloitte analysis published on Wednesday night highlighted a “yawning gap” between retail spending and weak consumer confidence heading into Christmas, with few signs to date that the fastest rise in interest rates since the 1990s is driving households to tighten purse strings.

Consumers are paying more at the shops as inflation soars, which is increasing spending, but even accounting for this Deloitte says activity across Australia’s shopping centres is still strong.

It followed KPMG forecasts on Wednesday suggesting consumers are set to spend as much – if not more – during Black Friday and Cyber Monday shopping holidays in November than last year.

KPMG head of retail Lisa Bora said the stage is set for more than $33 billion worth of spending, in a continuation of a trend that has seen the Christmas shopping rush begin earlier in the year.

She said consumer spending is unlikely to slow until 2023, when a Christmas hangover is likely to hit consumers hard as the impact of rising interest rates and inflation finally flows through.

“Retail is not slowing down presently. We’ll have a strong experience until the end of the calendar year,” Ms Bora said.

‘Strong momentum’

Ms Bora said pent-up demand from the COVID-19 pandemic still appears to be carrying strong consumption, despite the budget impacts of soaring inflation and fast hikes in interest rates.

“We’ve been fortunate, we’ve got strong employment and income growth and we’ve been able to take advantage of elevated household savings,” Ms Bora said.

“That’s unwinding, but we think residual savings will take us through to the new year … there’s still a lot of optimism in the market. Holiday spending should be good and we’ll see it earlier.”

Australian Retailers Association card-spending data published on Wednesday revealed spending across the sector was up 32 per cent year on year, with chief executive Paul Zahra saying that the industry’s rebound from lockdowns in 2020 and 2021 has been remarkable.

“Retail sales continue to go from strength to strength,” Mr Zahra said on Wednesday.

“It’s pleasing to see many retailers build strong momentum as they enter their most critical time of year – our holiday sales predictions with Roy Morgan show Australians will spend nearly $64 billion in the lead-up to Christmas, up 3 per cent on last year.”

Holiday hangover

Experts predict strong retail spending will continue until January, when a holiday hangover is likely to see “wallet wisening”, Ms Bora said.

“We will see a lot more normalisation [in spending] in the new year.”

Deloitte agrees, noting in its forecasts on Wednesday night that consumption will slow soon as the effect of higher rates starts to pressure household budgets.

“Increasingly, interest rate rises will bite and consumers will need to tighten their purse strings from here,” Deloitte economists stated.

“That softer outlook for consumer spending and exports, combined with a housing market that is experiencing the full effect of rising interest rates, is expected to lead the domestic economic outlook in the near term.”

The slowdown will be watched closely by the Reserve Bank, which is hoping higher rates will ease consumer demand and thus the pace of inflation, as outlined at its last policy meeting.

“While consumption had so far held up, monetary policy operated with a lag and there was a risk that household spending might adjust by more than expected,” the RBA said in its October meeting minutes, published on Tuesday.

“Higher interest rates, alongside higher inflation, were putting pressure on household budgets and consumer confidence had fallen.”

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