Australians pull back on retail spending as case for holding interest rate grows

Australian shoppers trimmed their spending in June amid a cost-of-living squeeze, adding to the case for the Reserve Bank to extend its interest rate pause for another month.

Retail turnover fell 0.8% last month, erasing a monthly increase of that amount in May, the Australian Bureau of Statistics said on Friday. Economists had expected spending to be unchanged for the month.

“There was extra discounting and promotional activity in May, leading up to mid-year sales events,” said Ben Dorber, the ABS head of retail statistics. “This delivered a boost in turnover for retailers, but that proved to be temporary as consumers pulled back on spending in June.”

Victoria, New South Wales and Queensland, which make up about two-thirds of the national economy, all saw retail spending sink last month.

Among the spending categories, turnover at department stores plunged 5%, while clothing, footwear and personal accessory spending was down 2.2%. Outlays on food edged higher.

At an annual rate, retail turnover in June was 2.3% higher. Still, that advance was well shy of the consumer price inflation rate, which was running at a 5.4% clip last month.

The RBA board will now have all the key economic statistics it needs to make a call on whether to keep its cash rate at 4.1% for another month. It will receive the forecasts that will make up the quarterly statement on monetary policy.

The Australian dollar lost ground against its US counterpart after the weak retail sales figures. It was trading at US66.9c, down from about US67c.

“The loss of momentum in consumer spending will weigh heavily on upcoming RBA decisions,” said Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia. “After the promising CPI print earlier this week, we expect rates will be on hold in August.”

Retails spending had “moved sideways” during the past three months. “Price inflation is cooling, but remains positive,” Langcake said. “This implies retail volumes are falling as households battle against the strain of higher interest rates and cost-of-living pressures.”

Among the major banks, the ANZ expects the RBA will have an extended pause in its key interest rate. An ANZ survey of “observed spending” over the first 22 days of July found outlays were more than 10% lower than for the same period last year.

NAB forecast the RBA would pause again next week.

“While one month of data in this goods-skewed consumption indicator won’t emphatically shift the dial on the RBA’s assessment, the weak June outcome does reverse the optimism from the May data,” NAB said. “[That] would feed into the RBA’s fears that consumption may slow more than necessary – an argument that the RBA Minutes included as one of the reasons for why the RBA paused in July.”

The CBA, though, predicts the central bank will still press the rate-rise button next Tuesday, although the decision will probably be a “finely balanced” one.

On Friday Westpac confirmed it expected the RBA would lift the interest rate another 25 basis points to 4.35% – making it 13 increases since May 2022.

Westpac believed “the board should maintain its tightening bias”, chief economist Bill Evans said, citing the “stickiness of services inflation” in the June quarter ABS report.

The strong jobs creation numbers in June should also factor in the RBA’s reckoning, he said.