Over the next six months we’re set to see how the impact of 12 interest rate rises in around a year is going to pole-axe the economy. I know it sounds dramatic but that was exactly what the Reserve Bank was aiming to do.

It’s called tightening monetary policy, but this is a nice economics term for taking disposable income from consumers with debts, exterminating jobs and squeezing businesses with loans. This is all meant to KO spending and kill inflation.

Last Friday we saw retail spending in June fall by 0.8%, which was the start of the official statistics catching up with the pain that higher rates are imposing on consumers. This was weaker than tipped. It saw traders price in only a 20% chance of a quarter point RBA rate hike, which was an ‘on the money’ call, with the Big Bank pausing again on rate rises.

Right now, official unemployment hasn’t shown the impact of the jump in the cash rate of interest from 0.1% to 4.1%, with unemployment at an historical low of 3.5%. But I reckon that will soon change, if this story from The Australian’s Geoff Chambers is right. Quoting a study from the Council of Small Business Organisations of Australia (COSBOA), he revealed the following about the state of small businesses:

1. About 43% of small businesses are failing to make profit!
2. Three-quarters of small business owners fail to take home more than the average wage, which is around $69,000 a year or $35 an hour.
3. Regulatory burdens are eating into profits.
4. So is a lack of workers, which has jacked up the cost of attracting a worker.
5. Along with the impact of rising interest rates, inflation completes the torture for many small businesses.

“The quarterly Small and Micro Business Index, which coincides with the Australian Bureau of Statistics on Thursday reporting the first year-on-year drop in ­retail trade volumes in more than three decades, warns that the number of business closures is increasing due to ‘falling profits during the cost-of-living crisis’,” Chambers revealed.

The number of businesses closing up shop (after accounting for new start-ups) was 11,349 in the June quarter alone. I bet that number grows between now and year’s end.

The blowtorch of the RBA’s rate rises is starting to burn the economy with those retail numbers and this small business report suggesting that more and more businesses and employees/consumers are set to feel the heat as the hundreds of thousands of borrowers go from low fixed rate loans to high variable loans.

The RBA was right to stop raising rates over the past two months. If the 12 rate rises prove to be more damaging to the economy than Dr Phil Lowe and his board were planning, the only good news story I can peddle is that it might bring forward the time when we see rate cuts!