Amid the headlines about high inflation and demands for higher interest rates, the ongoing story of the Australian economy is consumers pulling back on spending and being stuck with persistent inflation due to governments.
June’s retail sales data from the Australian Bureau of Statistics showed a headline rise of 0.5% month on month. But that disguised yet another fall in retail volumes for the June quarter, this time of 0.3%, continuing the trend of the past year and a half as consumers continue to shun anything but one-off specials or deeply discounted products.
The March quarter saw a fall in volumes of 0.4% after a rise of 0.4% in the December 2023 quarter, thanks to the Black Friday boost last November, but that came after four straight quarters of negative volume growth through to September 2023. It’s been a bad 18 months for retailers.
The ABS said in an accompanying statement that the positive monthly figures were because “end-of-financial year sales boosted spending in June by more than usual, particularly on discretionary items like furniture, electrical goods and clothing”. According to retailers, “consumers continued to target sales events and look for the best deals”.
Events like Black Friday or end-of-year sales only tend to move spending around, not increase it — the “pull forward” effect could be seen from last November when the spate of “Black Friday” one-off events by retailers saw monthly sales rise a strong 1.5%. This got inflation hawks very excited — only for a reverse of 2.1% to follow in December.
“Retail sales volumes fell for the sixth time in the past seven quarters, reflecting that consumers continue to hold back on spending. It also shows that much of the growth in monthly retail turnover reflects higher prices,” the ABS said. Retail volumes on a per capita basis told a similar story — they fell 0.9%, falling for an eighth straight quarter, down 3.0% compared to this time last year.
The June quarter CPI result of 1% was exactly in line with market expectations but means annual inflation was up to 3.8% for the year to June. Most of the sources of inflation were in areas that consumers have no discretion about buying and little sway over: housing was up 1.1%, driven mainly by a rise in rents so big that even increases in Commonwealth rental assistance couldn’t offset them; food and non-alcoholic beverages rose 1.2% (the lowest annual rise since 2022, but the quarterly rise was up on the March quarter), clothing and footwear (+3.1%), and alcohol and tobacco (+1.5%).
Alcohol and tobacco rises were due to government indexation of excise; their continuing presence in the CPI means there’s a guaranteed self-inflating dimension to the data as previous quarters’ inflation-based indexation pushes prices up this quarter. Another big contributor was insurance, up 3.1% — an area that is also partly in control of governments given they levy stamp duty on insurance.
Between housing, tobacco and alcohol and insurance — not to mention private health insurance premia — governments are responsible for a substantial proportion of the “sticky” inflation that hawks believe justifies further interest rate increases. Housing, insurance and fuel are all areas where the Reserve Bank could lift rates to double digits and there’d still be no impact on demand beyond more homeless Australians — people have to live somewhere, they have to get to work, they have to insure their homes and cars, or risk financial catastrophe.
The argument in response from inflation hawks is too bad, that just means the RBA should lift rates even higher so that other areas of demand are crushed so mercilessly that disinflation sets in and reduces the overall CPI movement. Or, as similar people described it in Vietnam, destroying the village in order to save it.
