The latest inflation data spells unwelcome news for many small businesses entering the Black Friday and Christmas shopping season, with analysts lowering their expectations of significant interest rate relief through early 2026.
The Australian Bureau of Statistics (ABS) this week unveiled its first monthly Consumer Price Index (CPI) indicator, showing CPI rose 3.8% in the 12 months leading up to October this year.
That was a sharper increase than the 3.6% rise in the 12 months to September 2025, and was stronger than the market consensus of another 3.6% annual lift through to October.
In seasonally adjusted terms, the clothing and footwear segment saw the second-highest annual increase of 5.8%, only behind housing at 6%.
Delving deeper, the ABS noted accessories were the main contributor to clothing and footwear inflation, with the soaring prices of silver and gold leading to a 12.4% price hike in that sub-segment.
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In the near term, rising prices — and the increasing costs of daily essentials and housing — could influence household spending habits in the Black Friday period and the lead-up to Christmas.
New inflation data in “fragile” spending recovery
Additional data shows many retailers are already doing it tough.
The latest Business Risk Monitor, released on Thursday by credit reporting service Creditorwatch, shows the persistent challenges facing smaller businesses in discretionary retail.
Retail sector insolvency rates continued to rise through October, even as insolvency rates in other discretionary sectors slightly cooled off.
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Creditorwatch CEO Patrick Coghlan said there were some early signs that consumer spending is lifting, but that recovery is very tentative.
“We’re finally seeing the early signs of a turning point for industries most exposed to discretionary spending, but the data makes one thing abundantly clear: this recovery is fragile,” he said, in a statement provided to SmartCompany.
While consumers are beginning to open their wallets again, many businesses, particularly smaller operators in hospitality and retail, remain under intense pressure.
Dramatic interest rate cuts unlikely
Inflation affecting back-end business costs is another cause for concern.
The CPI reading “illustrates the reality for small business owners that underlying operational costs continue to remain stubbornly high,” said Pay.com.au founder Grant Austin.
“This inflation is driven by persistent, crucial factors that continue to erode SME cash flow, irrespective of short-term consumer subsidies.”
Beyond retailers, Austin said 3.9% inflation in the ‘services’ series is a real concern for hospitality businesses.
“For SMEs, this translates to increased costs of doing business,” he said.
“Inflation in rents, wages and insurance premiums, coupled with supply chain pressures, makes it even more challenging for small businesses like cafes and restaurants to scale or hire.
“This directly correlates to business failure rates.”
Despite its new format, the latest CPI data suggests the Reserve Bank of Australia (RBA) is unlikely to introduce any dramatic interest rate cuts — which could stimulate consumer spending — in the near future.
“Throw this inflation print on the pile, and it is clear that the RBA cannot justify cutting rates right now,” said Deloitte Access Economics partner Stephen Smith.
The figures “aren’t low enough for the maths to deliver a 2.5% inflation outcome any time soon, meaning the RBA is in no position to further reduce interest rates in the absence of significantly higher unemployment,” said Calhoun, signalling another tempestuous few months for many small retailers and hospitality businesses.
