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‘Hits just keep coming’: Inflation fears could spark retail meltdown

‘Hits just keep coming’: Inflation fears could spark retail meltdown

“They’ve navigated the worst of the pandemic, but the hits just keep on coming 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.

Despite this, Zahra said the fact that retail sales have been at record levels should help insulate the sector as interest rates rise.

“Household savings [also] remain up on pre-pandemic levels, which will assist in cushioning the blow from the cost of living pressures many are experiencing,” he said.

Macquarie analysts noted that while consumers may have some cash to spend, a combination of rising costs and big spending on electronics during COVID lockdowns could dampen discretionary spending moving forward.

“The likely overconsumption of goods over the past two years as a key risk to near-term performance,” the group said in a note.

The ASX200 finished Tuesday’s session 3.5 per cent lower but plunged as much as 5 per cent throughout the day after Wall Street entered bear market territory and investors weighed the implications of recession.

Airlines are also keeping a close eye on whether recession fears will dampen appetite for domestic and international travel, which has rebounded strongly.

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Air Canada international sales vice president Virgilio Russi told The Herald and The Age that he was “following with great concern” global events like the war on Ukraine, which have pushed up the price of oil and fuel. A plane built for international trips, like a Boeing 747, will use 4 litres of fuel a second.

“It’s very possible that there will be a recession … we’re factoring that in,” 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 immediately affected.

Online retailer Adore Beauty chief Tennealle O’Shannessy is confident looming recession risks won’t do much damage to the beauty industry.

“Beauty is an incredibly resilient category, even in times of economic downturn,” she said, pointing out that consumers use skincare and haircare products every day.

“So, while macroeconomic factors may see consumers reduce their discretionary spending, it is unlikely to have a flow-on effect on the beauty category,” O’Shannessy said.

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