Retail good news might be bad news for rates

Company News

by Glenn Dyer

So what will the Reserve Bank make of the news that retail sales rose 0.9% in May to yet another monthly record?

It was the sort of strong report from the heart of Australian consumer spending that will get the worrywarts calling for another big rate rise at the July (that’s next Tuesday) meeting of the RBA’s monetary policy board meeting.

The RBA and governor Philip Lowe have said they will be watching indicators like retail sales, wages, inflation and jobs as they look at monetary policy and rate rises each month.

They will be watching closely for signs of ‘overheating’. The retail sales data might appear a bit ‘warm’ in the headlines, but in reality, it was a reasonable result.

The reality of the retail sales data was different to the headline – it’s the current burst of inflation that is driving sales in dollar terms to record levels, not consumers whipping out their cards and buying madly.

The Australian Bureau of Statistics (ABS) said on Wednesday that; “Australian retail turnover rose 0.9 per cent in May 2022, reaching another record level.” But in doing so, the ABS pointed to the impact of rising prices in several key areas.

That left sales 10.4% above the level of May 2021 when sales jumped 7.5% in the wake of an easing of the early start of year pandemic lockdowns. In fact sales rose $3.22 billion in the year to May.

So how much of that 10.4% was higher sales of products and services and how much was down to price rises?

The Consumer Price Index gives a partial answer – it rose 5.1% in the year to March with petrol prices up 35%. Food prices were up as well, as were car costs and a host of commodities like coffee, wheat, and meat.

If anything the price rises have accelerated in food – especially fresh fruit and vegetables (a $7 iceberg lettuce anyone?)

The March quarter retail sales data said volumes rose 4.9% from a year ago in the three months, so it would seem price rises are predominating.

May saw the fifth consecutive monthly rise in retail turnover following rises of 0.9% in April 2022, 1.6% in March 2022, 1.8% in February 2022 and 1.6% in January 2022.

But before the panic merchants go yelling “rate rise now”, they should think carefully about the impact of inflation on retail turnover – it is having a real impact and it would be starting to increase the cost of living for many consumers.

Ben Dorber, the ABS’s Director of Quarterly Economy Wide Statistics said on Wednesday, “There was growth across five of the six retail industries in May as spending remained resilient.”

“Higher prices added to the growth in retail turnover in May. This was most evident in cafes, restaurants and takeaway food services and food retailing.”

Those are major areas of consumer spending, especially food retailing where there have been plenty of stories of soaring prices for fruit and vegies.

Department stores saw the biggest rise up 5.1%, followed by cafes, restaurants, and takeaway food services (1.8%), other retailing (1.5%), food retailing (0.6%) and household goods retailing (0.4 per cent).

Clothing, footwear, and personal accessory retailing was the only sector to see a fall, down 1.4%, following three consecutive monthly rises.

NSW led the way among the big states with sales up 1.6%, followed by Victoria, up 1.3%.

Among the smaller states, South Australia saw a rise of 1.9%, Western Australia a rise of 0.2% , Tasmania (1.1%) and the Northern Territory (0.6%)

The only states or territories to record falls were Queensland, down 0.4%, and the ACT, down 0.3%.

The ABS said the fall in Queensland follows increased turnover from the flood recovery in March and a boost from tourism in April.

Interestingly there was no sign of any hit to sales from the campaign for the May 21 poll.

June’s data will be important because of the price factor and the sharp fall in consumer confidence this month and whether this translates into weaker sales.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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