Australia’s surprisingly strong retail sales fuel rate hike bets
AUSTRALIAN retail sales surpassed expectations in September, an outcome that will likely boost the Reserve Bank of Australia’s (RBA) confidence that the economy can withstand further interest rate hikes.
Sales advanced 0.9 per cent from a month earlier, far exceeding estimates for a 0.3 per cent rise, Australian Bureau of Statistics (ABS) data showed on Monday (Oct 30). This follows upward revisions to August and July data. The gain was driven by department stores and household goods.
The surprising pickup in spending jars with downbeat consumer sentiment and further bolsters the case for the RBA to raise interest rates to 4.35 per cent at its Nov 7 meeting. The rate-sensitive three-year government bond yield rose slightly.
“The warmer-than-usual start to spring lifted turnover at department stores, household goods and clothing retailers, with more spending on hardware, gardening, and clothing items,” said Ben Dorber, ABS head of retail statistics. “Also adding a boost to turnover in household goods retailing was the release of a new iPhone model.”
The RBA is now widely expected to raise interest rates at its Nov 7 meeting after third-quarter inflation came in higher than expected last week. New governor Michele Bullock has said policymakers “will not hesitate” to tighten further if there was a material upside to the inflation outlook.
Slowing consumption has been a factor in the RBA’s five rate pauses this year so far. Retail sales tend to be an important consideration in rate decisions given that consumption accounts for roughly 60 per cent of the gross domestic product.
While the rise in September was the largest since January, subdued spending for most of 2023 means that underlying growth in retail sales remains historically low, Dorber said. Retail turnover in trend terms is up 1.5 per cent from a year ago, the smallest trend growth over 12 months in the history of the series.
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. BLOOMBERG
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