The Federal Government has lifted the Fuel Security Services Payment (FSSP) thresholds that will result in far lower risk of EBITDA losses in both Ampol and Viva’s refining businesses. We estimate the EBITDA loss scenarios would only occur at a refining margin close to LRM of US$4.50/bbl or lower Ampol or GRM of US$6/bbl for Viva. Current elevated refining margins mean the FSSP is not at all relevant for the March quarter. The real debate is how long elevated refining margins hold. The situation around oil and fuel supply remains highly uncertain and should be taken into consideration in gauging the 12-24 month outlook.

Oil price shocks are relatively rare but they do lead to a spike in fuel prices. In Issue 10 of Price Watch, we explore the duration of fuel price spikes and their impact on both consumer demand and costs across the retail value chain. The impact of a 30-cent increase in fuel prices could drop retail sales growth by 0.8% with the most substantial impact in the first five months following the spike. The most notable impact is on takeaway food, fashion and hardware sales. The impact on retailers and consumers is broader than just the fuel price impact because product transport costs, energy costs and product packaging are also impacted by oil price movements.

The National Accounts results for the December 2025 quarter side with the RBA’s view that the consumer is in a strong position. Household income growth of 6.9% for the quarter (year on year) is well above trend. Consumer spending growth was 5.6% and discretionary spending outpaced staples spending. We view the December 2025 quarter as the peak in spending for the cycle. The combination of higher interest rates and higher petrol prices are likely to dent income growth and spending. However, the headlines about higher petrol prices may be worse than the actual outcome. A 15-35 cent lift in petrol prices would result in a 0.4% to 0.9% slowdown in retail sales growth on our estimates.

We have reviewed the US price and volume backdrop for Breville. Price rises put through in August 2025 look like they have stuck, albeit December was very promotional. Price rises of 3% will be partly offset by lower volume growth in our view. Breville’s 1H26e EBIT could rise by 4% with the tariff impacts only affecting three months of the period. We expect flat EBIT in FY26e.

The link provides a presentation associated with a webinar we held. The webinar addressed our retail sales forecasts for FY26e. The outlook remains constructive for retail spending in FY26e, interest rates are falling and tax cuts are providing stimulus for households, but population growth is slowing and income growth may not rise further from here. We assessed the willingness of consumers to dip into savings to drive retail spending higher.  

Australian retail has had a challenging 12 months. We expect we are past the worst for this sales cycle with a gradual improvement in growth over the next 12 months. We forecast retail sales growth of 2.9% in FY25e, up from 1.8% in FY24e. The sectors likely to see the strongest recovery are household goods, supermarkets and online. Some categories are still vulnerable to a correction in volumes such as liquor, cafes & restaurants and fashion. While there is an upswing, it will be mild and leave growth rates below trend for the next three years in our view given the low household savings rate and decelerating population growth.

Australian retail has had a difficult 2023 with below trend sales growth of 3.1%. We expect another challenging year with growth of 2.5% for 2024. While a weaker year, it will be a tale of two halves with softer growth in the January-June period and better growth for July-December. Moreover, we expect slowing sales in at-home food & liquor and a sharper slowdown in cafes, restaurants and takeaway food. We expect an improving rate of growth for non-food retail. While tax cuts will help sales later in 2024, lower retail price inflation, higher unemployment and a shift of spend to travel will all limit the upside in industry sales growth.

Australian inflation rose 5.4% in the September 2023 quarter, with our calculation for retail price inflation at 3.4%. Retail inflation has slowed significantly in some categories, particularly food, furniture, auto parts and sporting goods. The lower inflation reflects lower input costs flowing through and may be supportive of gross margins against a backdrop of rising operating costs such as wages and rent. Even so, it is likely that inflation fades further and is another headwind for nominal sales growth near-term given volumes are also sluggish.

Consumers love a bargain and retailers usually like giving them one. In Issue 5 of Price Watch, we profile the pricing tactics used by major Australian retailers, the legal boundaries for price tactics and where retailers can trip themselves up. There is a lot of wasted promotional money in retail and there is earnings upside in the order of 3% to 5% by taking an analytical approach to promotions. Super Retail Group and Woolworths have introduced new systems to manage promotions, improving the efficiency of promotional spend and lifting gross margins.

Australian inflation for the December 2022 quarter was 7.8%. Retail categories have had similar price increases, propping up retail sales growth. Retail volumes are already flat to declining based on our analysis. Packaged grocery inflation accelerated further to 7.0%. We expect the rate of retail inflation has peaked and volumes will start to decline at a faster rate this year.  This is more likely the risk in supermarkets, furniture, appliances and auto parts. Nonetheless, overall nominal retail sales growth will continue to be underpinned by price inflation over the next six months.