Borrowers beware, savers celebrate

ANY discussion of Australia’s rising interest rates must be prefaced with a reminder that there are two sides to every story.

So, while the recent rises in rates may be hurting borrowers, each move upwards – no matter how small – benefits savers, as well as sending ripples of change through the world of food retailing.

Most comments on the nine interest rates increases over the past 10 months have focused on mortgage pain and the employment future of Reserve Bank of Australia governor Philip Lowe.

But the flipside of interest rate moves is that people with money in the bank are starting to enjoy the fruits of their thrift, with standard savings bank accounts hitting the 4 per cent mark when a bonus is added for not making withdrawals.

Added to higher return on savings is the comfort of a government guarantee on bank accounts of up to $250,000.

Anyone who has hit that target, and is getting a 4 per cent return, is now earning $10,000 a year in interest, which might not be keeping pace with inflation but is much better than the pittance of the past.

Rising returns on savings accounts, government bonds and other forms of fixed interest will also be having a corrosive effect on the appeal of the stock market, where risk has been largely ignored over the past few years but is clearly moving into view today.

Another change being driven by interest rate increases and mortgage stress can be seen in the appeal of food discounters such as Aldi, which is emerging from its position behind retail leaders such as Coles, Woolworths and IGA Investment bank UBS noted the strengthening performance of Aldi in the latest of its Australian Supermarket series of surveys, which is based on questioning suppliers (not shoppers) because the suppliers are exposed to all retailers and provide industry-wide feedback.

Key findings of the latest UBS survey included observations that: Woolworths continued to outperform Coles as it had done in earlier surveys; suppliers expect food inflation to fall from the annual 8.7 per cent seen last June to 6.4 per cent over the next 12 months; and Aldi is gaining market share over everyone else.

The shift by households to cheaper groceries is a natural reaction to tighter financial conditions, but the speed at which Aldi is taking market share off the industry leaders is a significant measure of interest rate anxiety.

According to the suppliers who responded to the UBS survey, 67 per cent believe Aldi is best placed to win market share over the next six months, compared with 13 per cent seeing Woolworths as the winner and 20 per cent tipping Coles.

It was a very different picture this time last year before the interest rate rising cycle had started, with just 3 per cent seeing Aldi as the winner, 85 per cent tipping Woolworths and 9 per cent nominating Coles, with smaller retailers such as IGA making up the difference.

Ad space

ANOTHER measure of consumers being more careful with their cash can be seen in what appears to be a deterioration in the quality of advertising, especially on the internet and television.

Traditional leaders in terms of advertising spend are pulling back, leaving a void that is being filled with cheaply produced ads offering fringe products.

Hardest hit is social media, especially Twitter, which has been undergoing an ownership change that has led to wholesale staff cuts and the severing of ties with big advertisers.

What’s happening in advertising is an example of how a lower barrier to entry means lower quality material is making it to air.

Or, as an advertising executive told The New York Times last week, social media sites are taking whatever money comes their way.

“Beggars can’t be choosers,” he said.

Poor read

AUSTRALIAN coal is back on China’s shopping list, with beef and timber set to follow.

Rock lobster is also reported to have made a return and it might not be long before Australian wine makes a return appearance in Beijing restaurants, a potential move evident in the share price of the biggest exporter of Australian wine, Treasury Wine Estates (TWE).

After suffering a 50 per cent share price fall in early 2020, TWE has risen to be within sight of its pre-embargo price, a recovery that demonstrates how badly China misread its influence over smaller countries.