SYDNEY: Earnings of Australia’s top supermarket chains are likely to show constricted spending presenting a challenging outlook for Woolworths and Coles, as consumers deal with painfully high mortgage rates and sticky inflation.

Decade-high interest rates and stubborn inflation still running above the central bank’s target range has prompted consumers to be mindful of their spending, analysts warned.

The results will show the impact of a protracted cost of living crisis on the companies, which ring up two-thirds of every Australian dollar spent on groceries and are often barometers of the wider economy.

Consumers are becoming more discerning by trading down in items such as food by choosing lower-priced items and more at-home consumption, UBS analysts wrote in a note.

Woolworths and Coles “face headwinds over the next 12 months because it’s unlikely the economic outlook will improve due to the higher rate environment,” said Kyle Rodda, senior financial market analyst at Capital.com.

The softening in consumer demand should be reflected in their earnings, he added.

Woolworths is set to report annual results on Wednesday while smaller rival Coles will report today.

 - Reuters