Soaring electricity prices are becoming a drag for Australia’s weakened retail sector, with the latest round of increases likely to further crimp consumer spending, a new ANZ report says.
The sharp increase in energy prices from July 1 will lead to the average Australian household facing a 10 per cent jump in electricity bills and a five per cent rise in gas bills, ANZ economists have estimated.
That would translate into household energy bills going up by an average of $200 annually, or about 0.3 per cent of annual income.
The bill shock will result in reduced discretionary spending by households, adding to the challenges for consumer spending and putting Australia’s economic growth outlook under a cloud, the economists say.
“Rising energy bills are a headwind to consumer spending,” ANZ senior economist Joanne Masters said in a note on Thursday.
“It is an additional cost impost for households, particularly those on low incomes, which are already facing challenges.”
Based on prices increases that came into effect from July 1, some residential electricity bills are set to rise by 20 per cent in NSW and South Australia, up to eight per cent in Queensland and 19 per cent in the ACT, while regulated prices in WA rose by around 10 per cent.
Rising energy prices will lead to higher headline inflation but will also hit consumers’ hip pockets at a time of weak wages growth, record high household debt and out-of-cycle mortgage rate hikes that have kept the country’s retail sector under pressure.
The Reserve Bank of Australia has also repeatedly expressed concerns in recent months that a combination of property-related debt and weak wage growth could cause a sharp drop in household spending.
ANZ’s economists pointed out that spending on electricity, gas and other fuels is already growing at the fastest rate of any category – up 3.5 per cent in the March quarter and up 11.2 per cent annually.
By comparison, overall nominal consumer spending rose 1.0 per cent in the same quarter and 3.6 per cent over the 12-month period.
“Given that electricity is largely a non-discretionary expense, any rise in electricity bills is likely to be matched by a reduction in discretionary spending, adding further pressure to already-struggling retailers,” Ms Masters said.