By Tina Zawila
I’m sure by now you have heard that the RBA lifted the official cash rate to 0.85% on Tuesday 7 June 2022. This comes on the back of the increase in May of 0.25% to 0.35%. Whilst most economists predicted another increase this month, nobody really anticipated a 0.5% increase. However, they are predicting that further increases may be ahead.
This is the first back-to-back rate rise in 12 years, so there will be many borrowers who have never experienced this before. And whilst the media has been focused on the additional burden this will place on homeowners and property investors, I think it’s also important to consider Australian small business owners who may have business debt as well as a home loan. If their business is highly leveraged and relies on debt in the form of an overdraft or variable rate loans, today’s RBA announcement may be very concerning.
We are all feeling the pressure of the increased costs of living – everything from fuel to groceries and rising energy costs, which of course is reflected in rising inflation rates. Inflation is currently at a two-decade high. The reasons for the increase in inflation are wide and varied and somewhat unprecedented for most of us – the war in Ukraine, combined with ongoing COVID-related supply chain disruptions and domestic factors including the recent floods. Again, business owners are also feeling this pressure both at home as well as in their businesses.
Then we turn our attention to the tight labour market where unemployment is at 3.9% and the Government is currently pushing the Fair Work Commission for a 5.1% minimum wage rise to compensate workers for cost-of-living pressures. And while this call for an increase to the minimum wage is completely understandable, if this expectation spreads across the rest of the labour market, it could simply exacerbate the economic challenges we are facing. The outcome of rising wages can be rising inflation as the increased cost of labour has to be recovered by businesses by increasing prices. It’s double-edged sword!
As an advisor to small business owners, I become concerned when we are in economic conditions of rising inflation, rising interest rates and rising wage expectations. These factors individually can be challenging, but combined they are a triple-threat.
Business owners have been through the wringer the last few years, and just when they may have started to feel like things are returning to some type of normal, they are now facing significant financial pressures. However, there is help, advice and support available. If you need professional advice regarding the impact the current economic conditions are having on your business, please call the team at UHY Haines Norton on 4972 1300.