Stuff (in Australia) is about to get more expensive

If you were planning to buy a new TV or computer in the near future then you might want to bring your planning forward and buy it sooner rather than later. Why? Well sometime over the next month or two the impact of the falling Australian dollar is going to start impacting the cost of everything that is imported—which in 'modern' Australia is just about everything.

Australian retailers have to be getting close to running out of pre-near-parity dollar goods they stocked up with in the last quarter of 2014. These are goods that were imported when one Australian dollar more-or-less bought one American dollars' worth of stuff. But now, with the Australian dollar bouncing around at the 78 cent mark compared to a US dollar, and threatening to fall even a bit lower, these retailers have to spend about $1.28 Australian to buy $1.00 of stuff where the prices are negotiated in US dollars—which is just about everything. So a computer that they could have imported for $1,000 late in 2014 will now cost them $1,280.

There is a view that the retailer's will absorb this increase. But this is fanciful thinking. Retailers all over Australia honed and sliced their margins to the bone in order to get people to spend up big over Christmas, and then because of the relatively low sales over Christmas they sharpened up and honed prices even more for the post-Christmas sales.

The retailers DO need to make profits to pay for leases, wages, power, etc. My view is that the retailers will need to pass on just about every cent of the higher import costs.

You can test this by attempting to buy something from Amazon US over the Web. If you bought something from Amazon back in last September the price you paid in Aussie dollars would have pretty much exactly been the price shown in US dollars. But if you do this now you will find that when you go to your shopping cart to check out the price will have been jacked up by about 28 percent.

If the Australian dollar gets down to around 68 cents, which is where the Reserve Bank of Australia thinks it should be, then you can expect to be paying about 45 percent more for imported stuff.

Barry.