Australia retail sales post first fall of 2022; yields drop
AUSTRALIAN retail sales declined for the first time in 2022 in December, suggesting consumers are beginning to rein in spending in response to rapid inflation and rising interest rates.
The currency and bond yields slid as sales tumbled by a larger-than-forecast 3.9 per cent, the biggest fall since August 2020, data showed on Tuesday (Jan 31). The result came after November’s gain was revised higher to 1.7 per cent as consumers brought forward Christmas spending to take advantage of Black Friday discounts.
“It was a shocking number,” said Diana Mousina, senior economist at AMP Capital Markets which had predicted a 0.5 per cent drop. “Cost of living pressures are starting to bite but I still don’t think this is enough to get the Reserve Bank of Australia (RBA) to hold next week.”
Retail sales have been seasonally weak in December in recent times, suggesting further evidence of slowing demand is needed before the RBA pauses tightening. Resilient consumer spending has been a key factor in its confidence that the economy can withstand higher rates, with a quarter percentage-point hike likely next week.
Money markets imply a peak rate of 3.7 per cent this year while economists expect the central bank will stop at 3.6 per cent, from 3.1 per cent now.
The Australian dollar edged lower after the report as investors weighed the data’s impact on the prospects of further rate hikes, and three-year government bond yields also declined.
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Escalating consumer prices and higher borrowing costs have battered consumer sentiment while the re-emergence of overseas travel is threatening to shift spending offshore. Bloomberg Economics expects further weakness into 2023 as the full impact of rate hikes passes through to household budgets.
Today’s data will be important for policymakers who have repeatedly stressed that a key risk to the outlook is the response of households to higher rates.
Despite December’s drop, retail sales jumped 7.5 per cent for the whole of 2022.
Household spending accounts for roughly 60 per cent of gross domestic product. The RBA is prepared for a slowdown, with its own forecasts showing consumption growth slowing to 1.3 per cent by end-2023.
Today’s retail sales figures showed turnover fell in industries that had been boosted by November’s Black Friday sales.
- Department stores had the largest fall, down 14.3 per cent, followed by clothing, footwear and personal accessory retailing dropping 13.1 per cent and household goods declining 7.8 per cent
- Food was the only industry to record a rise, up 0.3 per cent
- Quarterly retail sales volumes will be released on Monday
The data was released at the same time as figures from the RBA which showed private sector credit grew less than expected in December.
Economists at Australia & New Zealand Banking Group forecast annual credit growth to halve this year, “reflecting a decline in risk appetite as a result of weaker expectations of economic growth, inflation and rising interest rates”. BLOOMBERG
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