The end of the year is the most lucrative period for businesses, especially in the retail and services sectors. The Christmas peak season is marked by increased spending on gifts and travel as well as an uptick in demand for services such as restaurants, hairdressers, and social activities. Usually, consumers have a lot of money to spend on goods and services.
However, this Christmas, Australian businesses will see a new dynamic shift from the impact of inflation and interest rates with new monetary policies from the U.S., China, Japan, and other developed countries which continue to impact global economies. How will that affect Australian businesses, consumption, prices of goods, exchange rates between currencies and overall consumer behaviour?
Here is a quick overview of how inflation and interest rates will impact this Christmas in Australia.
How has inflation impacted on Australian Consumer Behaviour
Inflation is the rate at which the prices of goods and services are rising, and it is a key factor that influences how much consumers can spend on goods and services. New numbers show inflation has increased by 6.1 per cent over the past year and highlights the difficult circumstances facing Australian workers and families. High levels of inflation make it more difficult for households to increase their real incomes, which may lead to a decrease in consumer demand. This high and rising inflation is not surprising but it is still confronting.
Inflation is estimated based on changes in the Australian Consumer Price Index (CPI), which measures the prices of everyday goods and services purchased by Australian households. The Australian CPI has increased by 1.8% this quarter, and over the twelve months to the September 2022 quarter, the CPI rose 7.3%. The Higher inflation has come with higher interest rates and the independent Reserve Bank has warned they are set to continue to rise even further.
This year Australia’s economy has continued to grow at a steady rate due to a continuous rise in global commodity prices. However, an increase in inflation could lead to changes in consumer behaviour. Consumers may choose to spend less during this Christmas season and save more in order to prepare for rising inflation rates in the near future. An increase in inflation during the peak season could also lead to an increase in sales of non-materialistic gifts, such as experiences, which are a much more affordable option.
Furthermore, an increase in inflation rates could lead to an increase in online shopping. Consumers could choose to shop online to save both time and money as online shopping is less expensive than shopping in store.
The Impacts of Interest Rate Hike
The RBA believes that the economy is doing well enough to recover from the effects of the global financial crisis. This means that the economy has grown enough to warrant an interest rate hike as we have seen these past few months. An increase in the interest rate will have an impact on the economy. The economy may slow down as a result of people spending less as they will have a harder time getting a loan or paying one off. However, it could have a positive impact as well. The increased interest rate could help to keep inflation rates low which could, in turn, help to keep the Australian dollar stable. A stable currency is advantageous as it makes exports more attractive to other countries, which could help to increase the amount of Australian exports.
Higher interest rates may also lead to a slight decline in spending during the 2022 Christmas shopping season. Households may feel more financially constrained if they are required to pay higher interest rates on their credit cards and other types of debt. Credit cardholders may also feel more hesitant to take on new debt, given the higher costs associated with this type of financing.
However, it is important to note that spending during the Christmas season is often unpredictable. There are many factors that can contribute to fluctuations in spending. These include the state of the economy, employment trends, and the mood of consumers.
How should Australian SME businesses prepare for this peak season in 2022
While we cannot predict the future, we can make educated guesses about what might happen in the future. This is especially true for the Christmas season. There is a lot for businesses to consider when preparing for the Christmas season.
When dealing with the Christmas season, businesses will have to make sure that they have enough inventory on hand to meet the demand. They will also have to make sure that they have enough cash on hand to pay their suppliers and other bills as they come due.
You might want to quickly cash flow management tips to check our guide to safeguard your business.
There are a few things that businesses can do to prepare for the Christmas season. First, they can make sure that they have a good understanding of their customers’ wants and needs. This can help them to come up with products that will appeal to a wide audience.
Second, they can make sure that their accounting systems are up-to-date and accurate. This will make it easier for them to keep track of their cash flow throughout the season.
Also, check out our checklist to stay ahead this Christmas The Last-Minute Holiday Season Checklist For Businesses
2022 Overall Christmas Shopping Predictions
As many can already predict some shopping trends, there has been increased spending on food and beverages, As the costs of other goods and services increase, consumers may be more likely to spend more on social and experiential activities this Christmas.
Expenditures on these items are expected to increase not just during the Christmas season but overall in the coming years. Increased spending on experiences; Consumers may be more likely to purchase experiences, such as travel or tickets to concerts, rather than material possessions. These types of purchases may allow consumers to feel as though they are getting something special, while also limiting their spending. A decline in spending on apparel and toys. Consumers may choose to spend less on these items, given that they are often considered to be nonessential purchases.
This Christmas will see a unique twist of how digital disruption, interest rates and inflation will impact the peak season. More online shopping as household incomes continue to increase, consumers are expected to spend more online. The growing popularity of e-commerce may also lead to a decrease in spending at brick-and-mortar stores.
Conclusion
The last few years have been turbulent for businesses and their financial operating strategies. The interest rate and inflation impact on businesses has taken a toll on the entire economy and how businesses operate their finances.
Overall the Australian economy is expected to experience significant economic growth over the next five years, driven largely by the construction, logisitics and real estate sectors. The growth in these industries may lead to an increase in hiring, further bolstering the economy.
We believe that the upcoming Christmas season may see a slight decline in spending due to higher interest rates and higher inflation rates. Consumers may be more cautious about their spending, given the higher costs associated with borrowing money and purchasing goods and services.
At Capify we offer a range of financing options and business loans to help support your business through high and low periods. Check to see if you’re eligible for one of our loans with our online eligibility checker.
