Inflation fears could trigger retail slump
“They’ve been through the worst of the pandemic, but the knocks continue to come from ongoing supply chain issues, staff shortages and the rising cost of fuel and materials. Many of the cost pressures this year are unprecedented,” he said.
Even so, Zahra said the fact that retail sales are at record highs should help insulate the sector as interest rates rise.
“Household savings [also] stay at pre-pandemic levels, which will help cushion the blow from the cost of living pressures that many are experiencing,” he said.
Macquarie analysts noted that while consumers may have cash to spend, a combination of rising costs and heavy spending on electronics during COVID shutdowns could dampen discretionary spending going forward.
“The likely overconsumption of assets over the past two years is a key risk to near-term performance,” the group said in a note.
The ASX200 ended Tuesday’s session down 3.5% but plunged as much as 5% throughout the day after Wall Street entered bearish territory and investors weighed the implications of the recession. .
Airlines are also watching closely whether recession fears will dampen appetite for domestic and international travel, which has rebounded strongly.
Virgilio Russi, vice-president of international sales for Air Canada, said the herald and age that he was “following with great concern” world events such as the war against Ukraine, which have driven up the price of oil and fuel. An aircraft built for international travel, such as a Boeing 747, will consume 4 liters of fuel per second.
“It’s very possible that there will be a recession…we are taking that into account,” Russi said. “I think the world is changing, for the worse.”
Despite the warnings, some ASX-listed retailers remain optimistic that their sectors will not be hit immediately.
Tennealle O’Shannessy, head of online retailer Adore Beauty, is confident the looming downside risks won’t do much damage to the beauty industry.
“Beauty is an incredibly resilient category, even during an economic downturn,” she said, noting that consumers use skin and hair care products daily.
“So while macro factors may cause consumers to cut back on discretionary spending, this is unlikely to have a ripple effect on the beauty category,” O’Shannessy said.
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