Retailers in hospitality, fashion and other non-essentials likely posted another lacklustre month of sales as higher mortgage repayments, rents and cost of living pressures hoovered up more of the household budget.
Yet with most people in jobs and some cohorts insulated from rising borrowing costs, the Australian Bureau of Statistics’ March retail sales update is not expected to be universally gloomy.
Commenting before Tuesday’s data release, KPMG chief economist Brendan Rynne said he expected a reasonably solid result for retail sales punctuated by weakness across discretionary areas such as cafes, restaurants, recreation and clothing.
Resilience in spending would likely feed into the Reserve Bank of Australia’s problem with stickier inflation, Dr Rynne said, especially when underpinned by relative strength in the labour market giving people the capacity to spend.
Hotter-than-expected quarterly inflation data last week cut the odds of an interest rate cut in coming months and had some economists warning further hikes could not be ruled out.
Dr Rynne was not of the view more rate hikes were needed to curb price pressures.
Inflation was a little but stickier than hoped, he said, but two of the big drivers in the March quarter consumer price index were health and education – prices that increased at the start of the year.
But Dr Rynne stressed forecasters were operating in unusual times, with inflation still high and global economic challenges also in the mix.
Consumers have been adapting their spending towards essentials and away from discretionary items for some time, with the exception of major one-off events that consumers appear willing to bankroll by scrimping elsewhere.
In February, the 0.3 per cent lift in retail sales was in part driven by spending on Taylor Swift concerts, with weakness observed across unrelated categories like household goods retailing.
Spending activity is also likely to be weaker.
Card transaction data from Westpac for April revealed waning momentum in activity after a temporary burst at the start of the year.
Westpac senior economist Matthew Hassan said the indicator was tracking broadly in line with the lows observed in November and December 2023.
The discretionary spending slowdown had also started to broaden from goods and into services in recent weeks, the card transaction data showed, with essentials also soft compared with March.
Mr Hassan also expected slight gains in the official retail sales numbers in March in line with generally positive momentum during the quarter.
“But the picture may be a little less positive in April,” he said.
This post was originally published on Michael West.