Australian retail sales cool, boosting case to extend rate pause
AUSTRALIAN retail sales rose at a weaker pace than expected in August in a sign that the Reserve Bank of Australia’s (RBA) rapid interest-rate increases are weighing on the economy.
Sales advanced 0.2 per cent from a month earlier, slightly below estimates for a 0.3 per cent rise, Australian Bureau of Statistics (ABS) data showed on Thursday (Sep 28). The gain was driven by clothing and dining out.
The slowdown in household spending chimes with downbeat consumer sentiment and bolsters the case for the RBA to stand pat at 4.1 per cent at its policy meeting on Tuesday. The rate-sensitive three-year government bond yield edged down while the Australian dollar was little changed following the data.
“Spending was again boosted by the 2023 Fifa Women’s World Cup with strong demand for fan gear and increased spending across cafes, restaurants and takeaway food outlets as large crowds attended matches and live sites across the country,” said Ben Dorber, ABS head of retail statistics.
The RBA has left the door ajar to further tightening as it looks at incoming data on inflation, consumer spending, the labour market and the global economy. Retail sales are an important factor in rate decisions given that consumption accounts for roughly 60 per cent of gross domestic product.
Retail sales have broadly flatlined over the year, rising just 1.5 per cent compared with a peak of 19.2 per cent year-on-year growth last August.
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A potential headwind to spending is the large number of mortgages that were fixed for three years at record low rates during the pandemic and are being switched to higher floating rates, with the majority due in September.
Separate data on Thursday showed job vacancies for the three months till August tumbled 8.9 per cent following a downwardly revised decline of 2.5 per cent in the previous three months.
Bloomberg Economics expects consumption to weaken further as the full impact of policy tightening flows through to household budgets. Economist James McIntyre says the outlook for retail sales remains challenging despite strong employment, rising wages, increasing population growth and house prices climbing once more.
Today’s retail report showed:
- Clothing, footwear and personal accessory retailing led the gains at 1.3 per cent, followed by cafes, restaurants and takeaway food services, up 0.7 per cent.
- Household goods retailing recorded a third consecutive fall, slipping 0.4 per cent. BLOOMBERG
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