Australians are spending less time at the shops as sky high inflation and rapidly rising interest rates eat into family budgets.
But experts are unsure whether the pullback is enough to prevent the Reserve Bank from raising mortgage bills again in April.
Retail sales figures published by the Australian Bureau of Statistics (ABS) on Tuesday showed annual spending growth fell from 7.5 per cent to 6.4 per cent in February, in line with forecasts.
In monthly terms, sales rose 0.2 per cent to $35.1 billion – the same levels seen last September.
Economists said the figures, which are the first clear look at the trajectory of the retail industry after seasonally affected December and January data, show a spending slowdown is underway.
But experts disagree about whether the magnitude of that belt tightening among families is enough to push the RBA to pause mortgage bill hikes in April, despite 10 previous increases.
“I don’t think there’s a smoking gun in [the] data,” BIS Oxford head of macro-economic forecasting Sean Langcake said. “It’s hard to latch onto it and say clearly that the RBA have done enough, or too much, and need to stop hiking [in April].”
The possibility of a pause in interest rates has gathered steam after RBA meeting minutes from March showed the bank considered foregoing another rate hike after a slew of economic figures early in 2023 showed the economy was slowing faster than many economists had anticipated.
Retail slowdown continues
That slowdown was evident again in the February retail data, with Westpac senior economist Matthew Hassan noting that the figures come after volatility over the Christmas period.
That means the small rise in sales “conceals a material underlying weakening” over a quarter.
“Sales are down 1.5 per cent quarterly on a rolling three-month basis,” Mr Hassan said on Tuesday.
Commonwealth Bank senior economist Belinda Allen said that retail sales continue to fall after peaking last November, when shopping holidays like Black Friday sparked a surge in activity.
“Since then retail trade has fallen by 2 per cent, dragged down by clothing, household goods and department stores,” Ms Allen said. “The current level of retail trade is now around the same as in September 2022.”
APAC economist Callam Pickering said this softer trade data will continue in 2023 as the average Australian family continues to come under pressure from high inflation and rising rates.
“[The] weak retail growth that we’ve observed recently suggests that cost-of-living pressures and the RBA’s response via higher interest rates is beginning to have an impact,” he said.
RBA considers data
The slowdown in spending is precisely what the RBA wants to see, having raised interest rates consistently over the past year in a bid to force families to tighten their belts and curb inflation.
But there were some ominous signs in the data that have some experts thinking there will be no reprieve from higher mortgage bills in April, as was earlier forecast by economists at Westpac.
Mr Langcake said inflation is still far too high, while a 0.5 per cent lift in spending at cafes, restaurants and on takeaway food services in February will worry central bank bosses.
That’s because it’s a sign that services spending remains robust amid fears that higher wages growth and persistently low unemployment will combine to make it harder to reduce inflation.
“It’s still the case that inflation is really high, and a few weeks ago they said they saw themselves needing to do a bit more,” Mr Langcake said.
“I’ll be pretty surprised if it’s a pause [in April].”
Mr Pickering offered a similar assessment, but said recent financial instability globally amid the collapse of several banks in the United States and Europe may temper the RBA’s gusto.
He sees the prospect of a rate hike versus a pause in April as a “50-50 proposition”.
“Most economic data suggests that another rate hike or series of rate hikes would be appropriate,” he said. “That, of course, is complicated by the financial stability concerns that have emerged over the past month.”
