As the Reserve Bank signalled that surging prices for services such as insurance and professional advice would have to end for inflation to fall to sustainable levels,credit reporting firm CreditorWatch said corporate defaults were up sharply as businesses struggled to cover their bills.
Consumer confidence has climbed to a two-year high,thanks in part to Prime Minister Anthony Albanese’s revamped stage 3 tax cuts.Alex Ellinghausen
Consumer confidence has fallen sharply since mid-2021 as the combination of inflation,high interest rates and an increasing tax take has curtailed the spending habits of the nation’s shoppers.
But senior Westpac economist Matthew Hassan said it appeared were boosting sentiment, who would have missed out on any tax relief under the original stage 3 plan.
“While sentiment is still firmly pessimistic,there finally looks to be some light at the end of the tunnel for Australian consumers,” Hassan said.
“Moderating inflation and shifting expectations for interest rates appear to be the main factors behind the lift,with some additional support coming from the prospect of broader income tax cuts later in the year.”
That may be too late for some businesses,which are now struggling to pay their bills.
In data to be released on Wednesday,CreditorWatch said business-to-business payment defaults continued to climb and in January stood 55 per cent higher than they did a year ago.
External administrator appointments were above their pre-COVID levels,while court actions for business debts were at their highest rate since April 2020. The average value of business invoices was down 19 per cent over the year,in a sign of the subdued retail environment.
Western Sydney is the area at the highest risk of business failure,according to CreditorWatch,including the suburbs of Merrylands,Green Valley and Canterbury. South-east Queensland was also at risk.
The Federal Government's stage 3 tax overhaul is now assured,with the Opposition confirming it won't stand in the way of the tax cuts.
CreditorWatch chief executive Patrick Coghlan said for businesses.
“The retail trade numbers for December clearly showed that interest rate increases and high inflation are now exerting a huge amount of pressure on households,which translate to lower demand for goods and services,” he said.
“Our hope is that interest rate relief arrives sooner rather than later to ease cost-of-living pressures and stimulate demand.”
One of the largest cost-of-living pressures,which has forced the Reserve Bank to lift official interest rates,has been inflation,which peaked at 7.8 per cent in late 2022. It has now but remains well above the RBA’s 2-3 per target band.
Marion Kohler,the head of the Reserve’s economic analysis department,on Tuesday told the Australian Business Economists’ annual forecasting conference that while the strong lift in inflation for goods was likely to halt,it was a different story for services.
“Firms in our liaison program continue to say that they face pressure from higher labour and non-labour costs like professional services,logistics and insurance,” Kohler said.
“We are forecasting that services inflation will decline from here,but only gradually,as demand moves into better balance with supply and domestic cost pressures moderate.
“This decline in services price inflation is necessary for the inflation target to be achieved over time.”
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