Retailers' Christmas rate cut wish as sales hold firm

Australians are expected to flock to Boxing Day sales this year, despite cost-of-living pressures and high interest rates squeezing household budgets.

Bargain-hunters are tipped to spend $1.3 billion on Boxing Day, 1.8 per cent higher than last year's spending figures, data from the Australian Retailers Association and Roy Morgan shows.

Still, conditions have been challenging for retailers.

Headline inflation has outstripped sales growth, rising 2.8 per cent in the year to September.

Purchasing habits have changed in recent years, with shoppers increasingly shifting their spending earlier in the discount season given the surge in popularity of Black Friday and Cyber Monday sales.

But what remains constant are cost-of-living pressures whetting appetites for a good deal, with consumers increasingly looking for value during the sales period to make their dollar work harder.

"It's been a really challenging year for retail, and it's not surprising to see that the sales events are where the wins are happening for retailers," Australian Retailers Association chief industry affairs officer Fleur Brown told AAP.

The peak season leading up to Boxing Day is the most important time of the year for retailers, she said, with many operators making up to two-thirds of their profits during the period.

Compounding economic pressures was increased competition from ultra-low cost Chinese online sellers Temu and Shein.

"So we're seeing retailers respond by fighting harder than ever," Ms Brown said.

"There are some really genuine offers out there when it comes to some of these sales events, and the winners really are the consumers."

The healthy sales predictions are welcome news to retailers, whose profit margins are highly sensitive to changes in consumer confidence.

With the Reserve Bank of Australia predicted to start cutting interest rates in early 2025, conditions are set to improve further for next year's sales season.

"Interest rates are everything when it comes to consumer confidence," Ms Brown said.

"Our eyes are very much on the February result with the RBA.

"We are very hopeful that they will lower interest rates, because it's really going to turn the tide when it comes to putting confidence back into the retail market.

"That's critically important for many small businesses in particular, who've really just been hanging in there by a thread."

While the RBA board left interest rates on hold at its last meeting in December, dovish commentary in its wake raised expectations that monetary easing is nigh.

Bonds traders are optimistic the central bank will lower the cash rate to 4.10 per cent at its next meeting in February, with the money market implying an almost three-quarters chance of a 25 basis point cut.

The minutes from the December meeting, released on Tuesday, could reinforce that view.

A rate cut would also be good news for hotel operators, although accommodation providers still experienced strong booking growth this holiday period.

Nationally, bookings are up 4.6 per cent in December and 4 per cent in January from the same period last year.

While customers were still prioritising a holiday, they were looking for the best value they could find, said Accommodation Australia chief executive James Goodwin.

"This is a solid result, particularly when we know family budgets are tight and international tourism has still not returned to pre-COVID levels," he said.