Australia | Jun 02 2008
By Chris Shaw
Just to show how much the average Australian consumer is being impacted by the level of interest rates at present, retail sales for May fell 0.2% against market expectations for an increase of a similar amount. The 0.5% increase previously recorded for March was also revised down to a gain of 0.2%.
As TD Securities senior strategist Joshua Williamson points out the figure shows the combination of tight financial conditions, zero wage growth and higher prices for essential items is starting to hurt and households in Australia are beginning to feel the pinch.
The May figures mean yearly retail trade growth is now down to 4.7%, which Williamson notes is equal to its lowest rate over the past three years. At the same time discretionary purchasing growth is falling rapidly as households pull back their spending on non-essential items.
Westpac senior economist Matthew Hassan agrees, the bank taking the view the combination of higher interest rates, rents and fuel prices are simply leaving less funds available to be spent on retail goods.
Commonwealth Bank senior economist Michael Workman cautions there is unlikely to be much relief on the horizon for consumers, as income tax cuts won’t come through until July and petrol prices are likely to stay at elevated levels for some time.
Workman noted one unusual feature in the May results in that food sales fell 1.1%, though as he points out this is off a high base as sales in that category rose 1.3% in March. The results confirm a wide divergence across categories as those with a higher weighting such as food, household goods and hospitality are quite weak, while some of the more discretionary categories such as recreation, garden supplies and jewellery remain strong.
In terms of the impact of the data on the outlook for interest rates, Williamson suggests the retail data are likely to be well received by the Reserve Bank of Australia (RBA) as they support the notion the recent interest rate rises are slowly beginning to impact on the level of economic activity.
In his view the data increase the chance of the RBA sparing any additional pain in terms of further increases in rates in coming months, particularly as other indicators of activity are also softening. Given the latest results there are no changes to Williamson’s view the next move in interest rates will be down, sometime late this year.