The RBA is set to hike interest rates on Tuesday as buyers cut spending

“That promise has not been kept, instead electricity bills have risen sharply along with mortgages and food costs under this Labor government,” he said.

Shadow Treasurer Angus Taylor said the government should return the budget to surplus as soon as possible to deal with inflation.

Data from the Australian Bureau of Statistics on Monday showed how higher interest rates are beginning to affect spending habits.

The total volume of retail goods sold in the last three months of 2022 fell by 0.2 percent. But it would have fallen much further had grocery sales not increased as the country’s supermarkets tried to keep prices stable in the run-up to Christmas.

However, the sale of durable goods has been heavily influenced by tariff adjustments.

Clothing sales, which are up 8.5 percent over the past 12 months, are down 2.7 percent since the RBA began raising interest rates in May. Sales of shoes and personal accessories, which are up 7.4 percent since December 2021, are down 3.7 percent since May.

Electronic goods are down 6.4 percent over the past 12 months but are down 9.2 percent since the Reserve began tightening monetary policy.

Commonwealth Bank economist Stephen Wu said the retail sector will continue to feel the pain caused by the RBA’s rate hike.

“The 0.2 percent fall in retail volume shows that demand has already softened late last year – even before the full impact of rate hikes was felt,” he said.

“With another rate hike expected at the RBA board meeting, and a large holding of fixed-rate debt rolling over this year, demand will only ease further from here.”

The combination of inflation and higher interest rates is also weighing on the real estate market.

PropTrack said on Tuesday it expects house prices to fall 8-11 percent in Sydney and 7-10 percent in Melbourne this year. The forecast is based on the assumption that the Reserve Bank will raise interest rates by 0.5 percentage points this year.

Prices in Sydney fell 9 percent last year while Melbourne fell 5.2 percent.

PropTrack’s economic research director, Cameron Kusher, said home prices in major cities are likely to fall 7% to 10% by the end of the year, largely due to RBA interest rates.

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“With borrowing costs continuing to rise and the resulting reduction in borrowing capacity, house price declines are likely to continue and accelerate in 2023, with more expensive cities likely to see the largest price declines,” he said.

“We expect these further rate hikes to push prices lower. However, a lower interest rate peak and earlier-than-expected rate cuts could mitigate the price decline.”

Despite another 10 percent drop, home prices would still be 18 percent above their pre-pandemic levels.