There’s never been a better time to go shopping

So, what are we talking about here? Discounts of 30 per cent, or maybe even 40 per cent?

The shoppers I spoke to in downtown Sydney on the weekend were reporting store discounts in excess of 50 per cent.

What’s the deal? It’s pretty simple really. Retailers are working extra hard to get you in the door.

Also read: Should you ditch property …for stocks?

Consumers on the back foot

Many Australians haven’t received a decent pay rise in years. It’s frustrating. And they’re therefore reluctant to part with their cash.

I recently had a chance to ask the deputy governor of the Reserve Bank, Guy Debelle, if he understood those frustrations. His reply? “It is what it is”, he said.

Of course he said he would like to see higher wages, but the reality is there’s not much more the Reserve Bank can do to solve the problem.

The problem is a tricky one. Basically, at this point in the economic cycle, with close to ‘full employment’, there should be some upwards pressure on wages. But there isn’t.

Economists call it NAIRU (Non-accelerating inflation rate of unemployment). It’s the unemployment rate at which the inflation rate remains subdued. Below that rate, which economists thought we had reached, inflation starts to pick up.

Also read: Australia’s mining boom may be over, but it looks like another is just beginning

It is possible, however, that, because there is so much slack in the labour force (casualisation of jobs, and the increase in part-time work) the unemployment rate needs to be significantly lower than it is now in order to get inflation “lift-off”.

Either way, workers/consumers are left in the same predicament: their spending or purchasing power is reduced because wages keep going sideways.

The squeeze

Minimal wage growth is not the only problem. Consumers are also facing higher costs of living.

One shopper I interviewed recently told me she didn’t really have any disposable income to speak of. She said after she had paid the rent, the credit card bill, petrol, as well as gas and electricity, there was nothing left over.

She came out for a shop last week to buy a dress for the Melbourne Cup. It was a one-off luxury purchase. Indeed financial counsellors encourage people to buy something nice for themselves, if they can afford it, every so often, because it helps to maintain a level of normality in your life.

Retailers respond

Retailers in shopping malls and department stores across the country have responded to this financial squeeze with crazy discounts.

The discounts have been so big that the latest data from the Bureau of Statistics showed retail prices in the three months to September actually went backwards by 0.4 percentage points. That was the sharpest drop in prices in 18 years.

So yes, technically, we are seeing retail price “deflation”.

Is it working?

Well, not really. Measurements of turnover, or the volume of sales through stores, have been pretty flat.

Indeed in the three months to September, turnover in the stores, seasonally adjusted, rose 0.1 percentage points. In trend terms sales growth is dead flat.

While there’s been heavy discounting at the shops, I guess folks are more worried about paying off their mortgage, and making sure they can run their air conditioning over the Summer.

Economic crutches

After reading all that you might ask, so why isn’t the whole economy going backwards? After all, growth in consumer spending makes up the majority of economic growth (as represented by GDP).

The answer is that Australian consumers are still spending money on essential services. This data is not captured by the retail sales numbers. It shows that people are willing to pay what is needed for healthcare, education, and transport.

Also read: 5 hot stocks to get wealthy

Not to put too finer point on it, but, yes, if Aussies pulled back on that kind of spending the economy would be – in the words of the National Australia Bank’s chief economist, Alan Oster – in “serious trouble”.

Is there any hope?

Of course! There’s always hope.

Alan Oster says he is seeing signs employers are finding it more difficult to find the right kind of candidates. That means that, when they do, those employees have stronger bargaining power and can demand higher wages.

The more prevalent this becomes, the more likely we’ll experience broad wage growth. Mr Oster forecasts wage growth could be as high as 2.25 per cent next year (up from 1.9 per cent this year).

And as wages rise, consumers can spend more, which lifts economic growth. That gives business owners more confidence to hire and generally leads to more worker benefits too (like higher wages).

Something to watch

The elephant in the room is global online retailer, Amazon. It’s generally understood that Amazon will force retail prices down further, due to its minimal overheads. It could also l lead to a major shake-up of Australia’s retail sector.

Economists, however, are playing it down. They say it’ll be sometime before Amazon establishes itself properly on our shores, and, in the meantime, the retail dynamics will change, and then change again.

For now, if you have some money to spend, don’t discount how much you could save by shopping for that special something you’ve been eyeing for a while now.

@DavidTaylorABC