After eight months of consecutive interest rate rises, and inflation of 7.8% per annum, the highest level it has been in a long time, you can be forgiven for wondering, when will it end? 

In fact, there are a number of factors that go into the Interest rates and inflation equation. One such factor is the level of Retail Sales around the country. 

The Retail Sales figure is very important because it provides an indication of what consumers are spending their money on. A strong retail sales figure implies that consumers are upbeat and spending freely, whereas a lower figure indicates that consumers are cautious and watching their pennies. 

Over the December period, Australia’s retail sales figure fell 3.9%. In an environment of high interest rates and high inflation this can be seen as a relatively good sign that the economy is slowing and will help curb inflation going forward. 

While we still expect the Reserve Bank to raise interest rates over 2023, perhaps they won’t need to raise rates as much as previously thought because consumers are becoming cautious and spending less.   

Market expectations predict the cash rate to rise 0.25% in February and continue rising over 2023, before the Reserve Bank look to reduce rates into 2024.