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[SYDNEY] Australian retail sales rose only modestly in December but widespread softness in prices meant volumes for the whole fourth quarter surged by the most in almost two years, delivering a much-needed fillip to economic growth.
A sustained pick up in consumption is desperately needed to offset the deepening drag from falling export earnings and a downturn in mining investment.
That was a major reason the Reserve Bank of Australia (RBA) cut interest rates to a record low of 2.25 per cent this week, and why markets continue to hanker for yet more easing.
Thursday's data from the Australian Bureau of Statistics showed retail sales rose 0.2 per cent in December, from November when they had edged up by only 0.1 per cent.
The result was short of forecasts but was more than balanced by a healthy 1.5 percent jump in inflation-adjusted sales for the fourth quarter to a record A$69.2 billion (S$72.4 billion).
The outsized gain in volumes came courtesy of a complete lack of pricing pressure, with retail inflation in the quarter essentially non-existent.
Demand was especially strong for household goods where sales volumes surged 5.5 per cent in the quarter amid a rush to furnish new homes or renovate existing ones.
Lower interest rates and falling petrol prices should give consumers the wherewithal to keep shopping.
Three of the major banks have all passed the RBA cut on in full, lowering the standard variable mortgage rate to four-decade lows around 5.65 per cent. Borrowers with a A$300,000 loan should now save around A$750 a year in payments.
That came on top of a huge fall in petrol prices in recent months which was already acting as a form of easing by leaving households with more of their cash.
Ratings agency Fitch estimates households would save around A$761 a year if petrol prices stayed at current levels, equivalent to a 35 basis-point cut in mortgage rates on the average loan balance of A$210,625.
Scott Haslem, chief economist at UBS, suspects the RBA will cut by a further quarter point in March. If so, the total reduction in household debt payments would amount to around A$8.5 billion for all of 2015. "A 20 percent fall in petrol prices combined with 50 basis points of rate cuts, together represents a 1.4 percentage point boost to 2015 income growth, worth over 1.5 percentage points of 2014's consumption," he summed up.