Economists are starting to circulate their notes on the ABS’s April retail spending data, with their analysis on what it means.
Callam Pickering, APAC economist at global job site Indeed, says it’s not great.
“Australian retail spending rose 0.1% in April — falling well short of market expectations – to be 1.3 higher than a year ago,” he said.
“Australian households continue to struggle, with cost-of-living pressures weighing heavily across the nation.
“Given rising prices and strong population growth, the average Australian household is buying considerably fewer retail goods than they were a year ago.
“This remains one of the weakest retail markets we have seen in Australia for generations. And that will certainly continue until at least mid-year.”
What are the implications of this data for the Reserve Bank’s interest rate decisions? Mr Pickering has this to say:
“The market is pricing in only a slight chance of a rate cut this year. And based on Australia’s economic fundamentals and risk profile, that seems appropriate.”
“While it isn’t terribly hard to construct an argument in favour of tighter monetary policy, these retail figures highlight how risky that would be.
“The ongoing softening of labour market metrics also suggest that monetary policy is having the intended impact on the Australian economy.
“Overall, monetary policy appears to be working but there are still some boxes that the RBA would like to see ticked, particularly around service sector inflation and productivity growth. Service sector inflation is still too high and there is a clear disconnect between wage growth and productivity growth that could prove problematic for inflation going forward.
“If we can see further progress on that front in the coming months, beginning with the monthly inflation measure this week, then the arguments in favour of further tightening become much weaker.
“Our view is that the next movement is likely down and that there is sufficient weakness in the Australian economy to push inflation measures back to the RBA’s target within a reasonable time-frame.”