Fuel prices are expected to increase insolvencies within the hospitality industry, according to economists in Australia.
Ivan Colhoun, Chief Economist at CreditorWatch, said the rapid increase in fuel prices during march are likely to cause insolvencies within the hospitality industry unless the conflict is ended soon.
Colhoun made the comment in response to the news that household spending was better than expected during the month of February.
“Today’s household spending result was a little better than expected, though it’s not clear whether that’s due to higher prices or stronger growth,” said Colhoun.
“That’s a little academic as March’s data is likely to see much higher spending on fuel crimp spending on discretionary items, a trend likely to continue while fuel prices remain elevated.”
He added that it will put pressure on insolvencies in the hospitality and retail industries unless the conflict is ended.
The Australian Bureau of Statistics highlighted data that indicated household spending rose 0.3 percent month-on-month in February, which was marginally above forecasts that predicted 0.2 percent.
Transport spending fell 0.4 percent, driven by lower spending on the operation of vehicles and partly offsetting the rise in household spending.
Tom Lay, ABS head of business statistics, said discretionary spending rose 0.5 percent in February, driven by recreational and cultural activities for concerts and musicals as well as higher spending on air travel and accommodation services.
CreditorWatch noted that the February data was likely to be irrelevant to how the economy will evolve in the coming months, given the recent sharp rise in fuel prices. The effects of the higher fuel prices will become clearer in the March and April data, which Colhoun said was likely to see stronger fuel expenditure displace other more discretionary spending.
Colhoun suggested that the RBA should set a monetary policy to ensure second-round impacts on inflation are limited.
“The Board might well elect to await further information on the conflict at the May Meeting, having tightened in February and March,” he said.
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