Charlie Nelson
5 September 2000
Recent petrol price rises have curtailed retail spending growth.
March 2000 National Accounts show that spending on the operation of
vehicles was up 16.7% over the March 1999 quarter.
This represents an extra $686 million, equivalent to 2% of retail sales
for the March 2000 quarter. The
automotive fuel component of the cpi increased by over 20% over the year.
Modelling by ACNielsen, based on data back to the early 1980’s shows
that the impact of motor fuel prices on retail turnover has been to cut growth
by 1% in the first half of 2000 and by 2% in the second half.
There is a lagged relationship, suggesting that consumers do not cut
spending until about six months after a rise in prices.
·
Clothing;
·
Cafes and restaurants; and
·
Take away food.
Supermarket turnover has been affected but by a smaller amount.
Demand for new vehicles has also been significantly impacted – by
about 6% in the second quarter of 2000. This
suggests that pre-GST deferral was minimal and that the current strength of the
market is largely price related.
The sudden impact of rising petrol prices, coinciding closely with the
lead up to the introduction of the GST and rising interest rates, has increased
the difficulty of reading the underlying trends in retail spending.
Rising interest rates have more impact on sales of durable products such
as furniture than on consumables such as food, while the reverse is true for
rising petrol prices. With both
interest rates and fuel prices rising together, this means that virtually no
sector of retailing will be spared from downward pressure on growth.
Some categories, such as clothing and new motor vehicles, are impacted by
both.
It is possible that an early start to the northern winter could push oil
prices higher in the short term. If
this happens, then retailers would face a bleak 2001. On the other hand, should oil prices fall in the next few
months this would offset the impact of rising interest rates in 2001.
Looking back in time, falling oil prices in 1998 helped to fuel the boom
in retail spending in 1999, adding to the impact of low interest rates.
Looking further back, the last time interest rates and oil prices were
rising in tandem was just before the 1990/91 recession.
Of course, interest rates will not rise to the heights of the late
1980’s – but consumer debt has doubled as a proportion of household
disposable income in the meantime. Given that it takes 18 months for interest rate changes to
fully impact consumer spending and that the tightening cycle commenced less than
12 months ago, the risks are on the downside for retailers in 2001.