Australian retailers can expect to feel chill in the air, Deloitte warns

Australian retailers are facing a frosty outlook ahead as relief from the fuel excise reduction and a wave of discounts, which helped cushion household budgets, fade.

According to fresh forecasts from Deloitte Access Economics on Tuesday, real retail turnover is expected to slow from 2.8 per cent in the 2026 financial year, to 1.5 per cent in 2026-27 as tougher economic conditions weigh on household spending.

“In the face of a frosty outlook, consumers were offered some insulation at the end of the financial year,” it said.

“Fuel tax credits and a wave of retail discounts helped to cushion household budgets and keep spending relatively resilient through June.

“However, as these temporary supports fade, and the woodpile begins to run low, households and retailers face a cooler outlook ahead.”

Deloitte Access Economics partner David Rumbens said the economic consequences of events over the first half of 2026 were starting to come home to roost for Australian households.

“Domestic price pressures and higher energy costs due to the conflict in the Middle East mean inflation is still running too hot,” he said.

“Despite three consecutive interest rate hikes in the first half of this year, the Reserve Bank does not expect inflation to return to target until mid-2027.”

Mr Rumbens said the effects were starting to show for households, pointing to unemployment, which rose to 4.5 per cent in July, and real wages falling 0.7 per cent in the year to June.

“Rising mortgage costs and the Federal Budget’s tax changes are also causing house prices to soften,” he said.

Deloitte expects discretionary spending to bear the brunt of the slowdown as households delay, trade down or pull back on non-essential purchases.

Overall, discretionary spending growth is expected to slow from 1.9 per cent in 2025-26 to 0.7 per cent in 2026-27.

But non-discretionary spending is also not immune to the pinch, with growth expected to ease from 2.6 per cent to 1.7 per cent over the same period.

Meanwhile, food and smaller discretionary purchases are expected to prove relatively resilient.

“The slowdown will not be felt evenly across retail categories,” Mr Rumbens said.

“Households are beginning to redirect some of their constrained discretionary spending from larger items towards smaller luxuries and experiences, while categories tied to the housing market are likely to face greater pressure as consumers delay, trade down or pull back on non-essential spending.”