Australia’s retail slugout adds to worry over weak inflation
SYDNEY: A fierce price war among retailers is threatening to keep a lid on improving inflation in Australia, compounding the problems of policymakers struggling to support still-weak domestic demand.
An uptick in consumer inflation has lowered the chance of another rate cut this year, but competition from global retailers such as Amazon.com Inc is set to keep prices under pressure – good news for shoppers but worrying for the central bank.
The country’s biggest retailers are suffering from a long spell of deflation that is unlikely to subside soon.
Amazon and German supermarket chain Kaufland want to fortify their global presence Down Under and will join recent entrants such as H&M, Uniqlo and Aldi.
The Reserve Bank of Australia (RBA) said on Friday that “heightened competitive pressures” in the retail sector were among key factors keeping inflation subdued.
“The arrival of further new foreign retailers will be an important influence on final retail prices over the next few years,” the RBA said in its quarterly statement on monetary policy in which it expects underlying inflation may only fully return to its 2-3 per cent target band by mid-2019.
Worried about deflation risks, the RBA slashed rates twice last year to a record low 1.50 per cent.
It is widely expected to hold rates until mid-2018 but subdued consumer prices could become a trigger for a move lower, and push the Australian dollar weaker.
“While consumers will benefit from lower prices, ongoing weakness in retail inflation is a key factor weighing on the broader inflation outlook,” said ANZ economist Jo Masters.
There was some relief headline consumer prices rose in the first quarter, taking the annual pace to its fastest since 2014 at 2.1 per cent.
But five of 11 sectors – about 30 per cent of the CPI basket – saw price falls. — Reuters