Australian retail sales in April showed a marginal increase as consumers continued to be cautious due to high borrowing costs and rising rents. This suggests that household spending is unlikely to contribute significantly to economic growth this quarter. According to data from the Australian Bureau of Statistics (ABS), retail sales in April rose by 0.1% compared to a 0.4% decline in March. Analysts had anticipated a slightly higher increase of 0.2%. ABS head of retail statistics, Ben Dorber, noted that since the beginning of the year, retail turnover has remained flat as consumers limit their discretionary spending. Furthermore, weak underlying spending was observed across most sectors of the retail industry in the past two months. April’s sales reached A$35.7 billion ($23.78 billion), marking a sluggish year-on-year growth of 1.3%.
Despite Australia’s population expanding by over 2% annually, the country’s economic growth remains disappointingly low. Sales volumes per capita have been declining for seven consecutive quarters, a trend typically associated with recessions. This can be attributed, in part, to the burden of higher mortgage rates and increasing rental costs, which are reducing consumer spending power.
Furthermore, the costs of services not included in the retail data, such as insurance, education, healthcare, and electricity, have been rising at a much faster pace than prices of goods. This persistent inflation in the service sector is a key factor influencing the Reserve Bank of Australia’s decision to refrain from lowering borrowing costs throughout the year.
Market futures indicate a mere 30% likelihood of a 0.25% reduction in the current 4.35% cash rate by December, and a full easing of rates is not projected until May 2025.
On Wednesday, the April consumer price figures will be released, with analysts predicting only a slight decrease in annual inflation to 3.4% from March’s 3.5%.
Starting in July, there will be a reduction in income taxes for many households, which will increase their overall income. However, surveys indicate that most workers plan to save the majority of this extra money.
According to Marcel Thieliant, the head of Asia-Pacific economics at Capital Economics, this means that consumption growth is likely to remain slow in the second half of the year. This, in turn, should help to further decrease inflation.
While the expectation is that the Reserve Bank of Australia (RBA) will not begin cutting interest rates until the start of next year, the continued weakness in consumption may prompt an earlier rate cut.
(Note: $1 is equivalent to 1.5015 Australian dollars)