Australia retail sales hit 7-month high as shoppers return

[SYDNEY] Australia's retailers enjoyed a rare sales surge in August as household wealth touched record highs and unemployment edged lower - signs that activity might pick up in coming months.

Retail sales rose 0.4 per cent in August, data from the Australian Bureau of Statistics on showed on Wednesday, double market forecasts and a relief after a flat July.

It was the biggest gain in seven months and should offer some comfort to the Reserve Bank of Australia, given the retail sector has sales of A$290 billion (S$ 300.3 billion) a year and is Australia's second-biggest employer with 1.25 million workers.

The central bank sounded a note of caution on household spending when it held rates at a record low of 1.5 per cent this week, following cuts in August and May.

This rise in sales should help allay some concerns about slipping consumption growth and subdued wages, said Kate Hickie, assistant economist at Capital Economics.

"Looking ahead, while low income growth has weighed more heavily on retail sales recently, with consumer confidence remaining decent and the interest rate cut in August providing a boost to disposable incomes, we doubt that sales will weaken significantly from here," said Ms Hickie.

The Australian economy grew 3.3 per cent in the year to June, its fastest annual pace in four years and ahead of the RBA's own forecasts.

That coincided with record high household wealth of A$8.9 trillion at the end of June, data out last week showed.

While housing accounted for much of that wealth, households also held A$996.6 billion in cash and deposits, representing more than a fifth of their total financial assets.

"Australians have never been wealthier," said CommSec economist Savanth Sebastian.

"Assets continue to rise, underpinned by strength in home prices and rising share markets over the past year. Clearly the balance sheets of Aussie households are in good shape. And higher wealth levels may point to higher spending ahead."

Shoppers did seem to return to department stores where sales bounced 3.5 per cent in August after a sharp drop in July.

Cafes and restaurants remained upbeat while sales in hardware, building and garden supplies, which have been fairly weak recently, rebounded by 1.8 per cent.

Sales of clothing, footwear and personal accessories slipped 0.4 per cent after two months of gains.

The dollar value of sales has in part been undermined by very low inflation with prices for some goods, including food and electronics, falling over the past year.

Core inflation is already at a record low of 1.5 per cent and looks like staying under the RBA's target band of two to three per cent for some time.

REUTERS