May 1, 2024

‘Path forward remains uncertain’: Spending slumps before RBA’s pre-budget rates call

By Rachel Clun
May 1, 2024 — 12.01am
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Shoppers have pulled back their spending on every retail category except for food as households struggle with high interest rates and sustained inflation, a strong sign the Reserve Bank may not need to raise interest rates further but economists remain cautious about the outlook for the May budget.

Retail spending fell by 0.4 per cent in March, according to the Australian Bureau of Statistics, taking retail spending growth over the year to the end of March to just 0.8 per cent – the weakest annual growth on record outside the pandemic and the introduction of the GST in 2000.

Retail spending fell in the month of March.Credit: Luis Ascui

The March slump in spending surprised experts, who expected a slight lift.

Callam Pickering, Asia Pacific economist for Indeed said the pace of growth was well below the pace of population growth (up 2.5 per cent in the year to September) and inflation (up 3.6 per cent in the year to March), which means that households have bought fewer items over the past year.

“This is one of the weakest retail environments we’ve seen in Australia, even with the support of historically strong population growth,” he said.

“Retail volumes per capita have fallen significantly and will fall further when the March quarter data is released next week.”

The largest falls in spending were in clothing, footwear and personal accessory retailing (down 4.3 per cent) and department stores (down 1.6 per cent), but spending on household goods, cafes, restaurants and takeaway and “other” retailing also fell.

The only category that grew (up 0.9 per cent) was food retailing, which includes groceries.

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Inflation figures released by the Bureau of Statistics last week showed consumer prices were continuing to rise in essentials including rent, insurance and education. Economists said that meant the likelihood of interest rate cuts in the near future was dim.

AMP deputy chief economist Diana Mousina said the figures showed consumer spending was clearly depressed.

“Today’s retail data is not consistent with an economy that needs further tightening,” she said.

The retail spending data is the last key piece of information the Reserve Bank will receive before its two-day board meeting next week.

KPMG chief economist Brendan Rynne said the figures would ease the board’s concerns about demand in the economy, believing the board would hold interest rates steady at 4.35 per cent.

“However, the RBA’s path forward remains uncertain. It will be closely monitoring real economic activity, wage growth and overall inflation data in the coming months and any surprises could delay any potential rate cuts, or even bring discussions of further rate hikes back to the table,” Rynne said.

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Australian Retailers Association chief executive Paul Zahra said ongoing cost-of-living pressures were making things tough for retailers.

“Whilst interest rates remain elevated, discretionary spending will suffer,” he said.

Despite the fall in consumer spending, home values have continued to rise as residential sales continue to outstrip property listings.

National home values rose by 0.6 per cent in April, according to the latest CoreLogic figures, the same pace of growth as March and February and the 15th consecutive month of growth.

Home values are up by 11.1 per cent, or $78,000 on the country’s median home value, since they bottomed out in January last year, with growth led by smaller capital cities such as Perth and Brisbane.

Sydney’s home values have continued to rise by about 0.4 per cent a month, while in Melbourne values fell by 0.1 per cent in April.

CoreLogic estimated there were nearly 76,300 homes listed for sale in the four weeks to April 28, which is 17.6 per cent below the previous five-year average, while the number of sales in April was 2.4 per cent higher than the previous five-year average.

“Such a mismatch between available supply and demonstrated demand is keeping markets skewed in favour of sellers in most cities,” the report said.

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Rachel Clun is an economics correspondent for The Sydney Morning Herald and The Age, based at Parliament House in Canberra.Connect via Twitter.
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