ACT inflation rise squeezes Canberra small businesses as spending slows

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ACT inflation squeezes businesses

Highlights

ACT inflation rose to 4.7 percent year-on-year in September, exceeding the national average of 4.3 percent and tightening household budgets.
The Reserve Bank of Australia is expected to raise the cash rate to 4.85 percent, heightening uncertainty and reducing non-essential consumer spending in Canberra.
Small businesses in Canberra, especially hospitality, report decreased foot traffic and lower sales as input costs rise and consumer demand weakens.

Canberra cost pressures deepen in September

As reported by ABC News, the ACT inflation rate climbs to 4.7 per cent in the 12 months to September, outpacing the national average of 4.3 per cent and adding to pressure on household budgets. With the Reserve Bank of Australia expected to lift the cash rate again to 4.85 per cent, many residents are continuing to cut back on non-essential spending.

That pullback is reducing foot traffic for some Canberra small businesses, particularly in hospitality. Casey Johnston, who runs a burrito business in Tuggeranong with her partner, says trading this year is especially difficult, with fewer people walking in for lunch or dinner and lower sales than in past years.

Johnston says the business is also absorbing higher costs for products and rent rather than passing them on to customers. She says that pressure is making staffing decisions harder, because weaker demand means wages cannot always be covered at previous levels.

Rate outlook adds to business uncertainty

John Hawkins, a senior lecturer in economics at the University of Canberra, says global oil prices are the main driver of rising inflation, while fuel, electricity, childcare and school fees, new housing construction, and furniture are major contributors in the ACT, according to the Australian Bureau of Statistics. He says inflation differences between cities can be uneven, with the ACT below Hobart, Darwin and Adelaide, but above Sydney and Melbourne.

Hawkins also says financial markets see a strong chance of a further 0.25 percentage point increase in mortgage costs, either immediately or in coming months, as the central bank seeks to slow the economy and contain inflation. That outlook points to continued pressure on household spending and a difficult trading environment for consumer-facing businesses.

Consumers are already responding by cutting back sharply. One Canberra hairdresser, Elanor, says she has reduced spending on coffees, holidays and restaurant meals, while clients at her workplace are keeping appointments but booking them less often than usual.

In our earlier article on the surge in crude oil shipping costs, we explained how conflict-related risks and rerouting around key chokepoints have pushed tanker freight rates sharply higher, making transport a much larger share of the final oil price. We also noted that these higher logistics costs can quickly flow through to petrol prices and then into broader consumer inflation via more expensive goods and services.

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