Australian retail sales rebounded in the first month of 2023 as consumers spent on everything from eating out to clothing and footwear, suggesting households are yet to be cowed by rising interest rates and elevated inflation.
(Bloomberg) — Australian retail sales rebounded in the first month of 2023 as consumers spent on everything from eating out to clothing and footwear, suggesting households are yet to be cowed by rising interest rates and elevated inflation.
Sales surged 1.9% from a month earlier, outpacing a forecast 1.5% gain, and partially offsetting an upwardly revised 4% slump in December, data showed Tuesday. In annual terms, sales rose 7.5%, in part driven by higher prices.
While January’s figures were affected by seasonal factors, the resumption of sales growth suggests domestic demand retains some momentum, boosting the case for further rate rises this year. The Reserve Bank has hiked by 3.25 percentage points since May and resilient consumers have been a key factor in policymakers’ confidence the economy can withstand higher borrowing costs.
Another quarter-point rate increase is likely at next week’s meeting.
“We expect nominal spending to hold up in the near-term,” said Faraz Syed, an economist at Citigroup Inc. “A sustained decline in nominal spending is a necessary condition for the RBA to tone down its recent hawkishness.”
Tuesday’s result will be important for policymakers who have repeatedly stressed that a key risk to the outlook is the response of households to higher borrowing costs. Household spending accounts for roughly 60% of gross domestic product.
What Bloomberg Economics Says…
“Taking a wider view, sales have basically flatlined over the past five months — another sign that faster inflation and rising interest rates are squeezing consumers. We expect further weakness through 2023 as the full impact of rate hikes passes through to household budgets”
— James McIntyre, economist.
To read the full report, click here
Money markets imply a peak rate of 4.3% this year, from 3.35% now, while economists estimate the central bank’s terminal rate at 3.85%.
The hikes are likely to further slow spending, with the RBA predicting consumption growth of 1.7% by end-2023, from an expected 5.5% gain in 2022. Fourth-quarter GDP data due Wednesday will shed further light on how households responded to the RBA’s rapid tightening last year.
“More households are switching consumption from retail to discretionary services, like travel, which are not counted in retail sales,” said Madeline Dunk, an economist at Australia & New Zealand Banking Group Ltd., citing the bank’s proprietary spending data. “More broadly, we continue to expect consumption growth to slow in 2023.”
The retail sales figures showed spending was driven by non-food industries:
- Department stores had the largest rise, jumping 8.8%
- Cafes, restaurants and takeaway food services rose 1.2% to a new record high
The data was released at the same time as separate figures showing exports contributed 1.1 percentage point to fourth quarter GDP. Economists expect Wednesday’s data to show the A$2.2 trillion ($1.5 trillion) economy expanded 2.7% in the final three months of last year.
That would reinforce the RBA’s view that the economy ended last year in a still-solid position and will be able to absorb further rate hikes in the battle against inflation.
–With assistance from Tomoko Sato.
(Adds comments from economists.)
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