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Australia retailing, inflation slowdown a red flag for rates
[SYDNEY] Australian retail sales were surprisingly muted in February, a red flag for hopes that consumer spending could offset global headwinds and keep the economy accelerating through the first half.
Combined with a very subdued private-sector reading on inflation, Monday's data suggested the Reserve Bank of Australia (RBA) would have to seriously consider the need for another cut in interest rates in coming months.
The central bank holds its April policy meeting on Tuesday and is widely expected to keep the cash rate at a record low 2 per cent, where it has been since last May.
While the RBA has said there would be scope to ease if needed it has shown little inclination to act, in part because policy makers doubt even lower rates would have much impact.
Yet with the local dollar strengthening in recent weeks and inflation already near the floor of the official target range, the RBA might feel compelled to reduce rates to avert the sort of disinflationary cycle bedevilling Europe and Japan.
"Today's data suite was all about weak inflation, and will no doubt feature in tomorrow's Board discussions," said Annette Beacher, chief Asia Pacific strategist at TD Securities.
"Real activity data were underwhelming. We can easily draw the conclusion that any pickup in retail sales is via volume, not prices."
Figures from the Melbourne Institute showed annual inflation slowed to a seven-month low of 1.7 per cent in March, while a key measure of underlying inflation was also under the RBA's target band of 2 to 3 per cent.
Investors reacted by narrowing the odds of a future cut, with May priced at one-in-four and August at even.
The Australian dollar also dipped on the soft retail news, though it remains around five US cents higher over the past month.
Figures form the Australian Bureau of Statistics showed sales were unchanged in February when analysts had expected a rise of around 0.4 per cent.
That was disappointing given the retail industry generates A$290 billion (S$299 billion) a year and is the second biggest employer with 1.25 million workers.
Altogether, household spending accounts for 56 per cent of Australia's A$1.6 trillion annual economic output, and it was a pick up in this sector that helped growth accelerate to a solid 3 per cent in the year to December.
A strong run in employment supported spending last year but some heat has come out of the labour market in the last few months.
A survey by Australia and New Zealand Banking Group showed job advertisements edged up only 0.2 per cent in March, to be little changed since December.
Other figures showed approvals to build new homes did top forecasts with a rise of 3.1 per cent, but activity also looks to have peaked for the time being.