From the General Manager

Positive Signs for Summer

IAN HORNE – AHA|SA GENERAL MANAGER

WATCH VIDEO: https://youtu.be/aXXj3a8WEMc

The Melbourne Cup generally marks the beginning of the festive season for hospitality with major events like the FIFA Women’s World Cup, ICC T20 World Cup Cricket and the Tour Down Under competing with end of year break ups and celebrations and many South Australians enjoying scheduled leave and other holidays.

The weather contributes to the success of this trading period. And of course we see the return of the Adelaide 500 car race through the streets of Adelaide as a result of renewed enthusiasm and commitment from the recently elected Malinauskas Government.

Add that South Australians are still showing support for travel within their own state, then this summer should be a bonanza season state-wide.

In this post COVID-19 environment, this is a very welcome outcome.

2023 however, will have its challenges, particularly with the economy and the impact of increasing interest rates reflecting global CPI pressure. This will impact on disposable income because of the increases in cost-of-living expenses. While we can take some comfort in the predictions that Australia will avoid a recession, that won’t be the case in other countries.

If inflation goes too high our consumers’ purchasing power will be reduced. If prices are increasing faster than people’s nominal incomes, they will be able to afford fewer goods and services over time. This is particularly true with automatic indexation of excise on certain types of alcohol.

Workers may then seek larger wage increases to compensate for the effects of higher inflation on their purchasing power. In turn, higher wage growth raises company costs, which may lead firms to raise prices further and/or reduce the number of workers they employ.

Spending and investment decisions may be distorted. This is because high inflation can influence when households make purchases or businesses make investment decisions. For example, if households expect higher inflation, they may make purchases sooner than originally planned to avoid paying more.

The harsh reality is that, under high inflation, businesses need to update their prices more frequently and consumers spend more time comparing prices. This increases their uncertainty about the economy, which may discourage spending and investment and reduce economic growth. It becomes a vicious circle.

And of course, the country’s international competitiveness may be lowered. If inflation is higher in one country, then the goods and services it produces will become more expensive compared with other countries, unless its currency depreciates.

We can only hope that the Reserve Bank of Australia gets it right.

In the meantime, the signs for at least the next six months look the best they have since November 2019.