'Booze barometer' confirms RBA's decision to cut rates

We're drinking less, but likely because we can't afford a tipple rather than some collective health kick.

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We're drinking less, but likely because we can't afford a tipple rather than some collective health kick.

Apparent consumption of alcohol decreased by 1.1% in 2010-11 to 182.0 million litres, according to figures released today by the Australian Bureau of Statistics (ABS).

This was the first decrease recorded since 2001-02, and was due to decreases in the volume of pure alcohol from beer (down 3.4%) and wine (down 0.6%).

Whilst it may be good news for the health of Australians, it may not be such good news for the likes of booze retailers Woolworths (ASX: WOW) and Wesfarmers (ASX: WES) and wine-maker Treasury Wines Estate (ASX: TWE), although it must be noted the effects on the profits of those companies will be minimal.

Does the "booze barometer" confirm The Reserve Bank of Australia's decision to slash interest rates by a half of one percent was correct?

Booze is a classic discretionary-spend item. But because of its addictive qualities, it's also one of the last things a struggling household will cut from its budget.

Many people are doing it tough out there in suburbia, saddled with massive mortgages, and faced with higher energy costs, amongst other things. For some, cutting back on booze would have been the final straw.

The RBA's belated but decisive interest rate cut was absolutely necessary, and Bank of Queensland (ASX: BOQ), Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank (ASX: NAB) have already moved to cut mortgage rates. Westpac (ASX: WBC) and ANZ (ASX: ANZ) will follow shortly.

The effects of the interest rate cuts won't flow through to the economy for a number of months, but it's definitely a move in the right direction.

In the Australian Financial Review, former federal opposition leader John Hewson says the RBA should continue slashing interest rates so they are in line with other developed economies, saying it would be better if the cash rate was as low as 2%.

It's not going to happen, certainly under Glenn Steven's watch. A better result would be for interest rates in the rest of the deveoped world to move up towards ours — a meeting in the middle, if you like.

But…I wouldn't hold your breath.


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