Christmas Retail Spending set to soar
Reserve Banks across the world have been raising interest rates to stem retail spending in an attempt to reduce inflation as retailers go on one of their largest spending sprees in over a decade brought on by pandemic policies that saw many lock downs in place across the globe. This has resulted in some having large amounts of savings in their accounts and leading to large spending.
However, not everyone is in the same financial position with news breaking that many families are struggling to keep pace with rising inflation costs which is has added increases to basic necessities such as food, shelter and utilities.
Increase in spending despite monetary restrictions
Despite the interest rate rises retail statistics indicate that this year has seen a 4% increase on spend compared to last year with people commencing their shopping sprees earlier and there has also been a 15% increase in families seeking support over the festive season in comparison to earlier years.
But retail figures are up with spending for this period reaching $AUD21.5 Billion nation wide which for many with a mortgage is a worrying concern as no doubt it will lead to quite a large interest rate rise come February when the Reserve Bank of Australia meets to assess if there will be a rise or not.
estimate of average personal spend
Average Spend increase
This years average spend put together by Finder showcases the amount each Aussie is spending this Christmas on Food, Alcohol, Gifts and Travel. According to Finder the biggest spenders are Gen Z and Baby Boomers spending on Travel while Gen Y will spend the most on gifts.
The snapshot data is quite important because it may paint a bigger picture on why interest rate increases are failing to stem inflation given that we are now in a new economy.
Interest rate increases will not impact Gen Z and Boomers as they are more likely to have their assets paid of and in retirement while Gen Z being the youngest will be unlikely to hold mortgages across their entire age group. Gen Y which are now middle age and raising families are spending less on Christmas given their generation is most likely to now be having children and paying down a mortgage.
With demographics so disjointed and out of shape, the Reserve Bank will fail to deliver an inflationary reduction if it continues to place households into further financial stress.
50 Basis Point Rise Likely
Give the above information with Boomers and Gen Z dominating Christmas spend it is more than likely the RBA will increase interest rates by 50 Basis points as this was their target in December but didn't do so due to not wanting to impacted peoples Christmas and only raised the interest rate by 25 Basis points.
The issue behind the curtains is that at current the majority or mortgages are still locked in at under 2% interest and wont unlock until the end of 2023 which will see mortgages rise by 40% - 60% leading to mortgage shock. The increases are even larger than what Banks assessed borrowers at.
Given the large amounts of spend at the counter there is a good chance that come the end of 2023 there may have been further interest rate rises which will cause financial ruin for many unless they commence planning today.
If you're in this boat, you need to be battle hardening your financial stability and prepare for when your fixed loan rate expires. If you still have your other half of your loan variable, consider your options.
There could be a very real probability that repayments at the end of 2023 will reach $6000 - $8000 per month.
The good news is, once that happens the RBA will reduce interest rates in and around December 2023 and Feb 2024. But much is still left to the unknown.
image sources provided supplemented by Canva Pro Subscription. This is not financial advice and readers are advised to undertake their own research or seek professional financial services.