Retail spending surge sparks rate hike concerns

In September, retail spending experienced a notable 0.9 per cent increase, according to the Australian Bureau of Statistics (ABS).

This surge represented a 2 per cent year-on-year rise, up from the 1.6 per cent reported in August.

Consequently, it set a new record high for retail trade, reaching $35.8 billion, just slightly above the previous peak recorded in November 2022.

These results surpassed the expectations of market economists, who had anticipated a 0.3 per cent monthly increase.

Notably, food retailing rose by 1 per cent during the month, rebounding after two months of decline and continuing a steady upward trend since February 2022.

In addition to this, spending at department stores increased by 1.7 per cent for the month, household goods retailing saw a 1.5 per cent rise, and other retail categories experienced a 1.3 per cent increase.

Meanwhile, clothing and footwear saw a more modest increase of 0.3 per cent.

ABS head of retail statistics Ben Dorber attributed the strong lift in spending to the “warmer-than-usual start to spring”, which boosted turnover in department stores, household goods and clothing retailers, with increased spending on hardware, gardening and clothing items.

The release of a new iPhone model and the introduction of the Climate Smart Energy Savers Rebate program in Queensland also contributed to the growth in household goods retailing.

“While the rise in September was the largest since January, subdued spending for most of 2023 means that underlying growth in retail turnover remains historically low,” Mr Dorber said.

“Retail turnover in trend terms is up only 1.5 per cent compared to September 2022 – the smallest trend growth over 12 months in the history of the series.”

Commonwealth Bank’s economist Stephen Wu speculated that “changing consumer behavior in response to prices” might be at play, particularly in light of a decrease in food prices, as indicated by the latest Consumer Price Index (CPI) data.

CreditorWatch’s chief economist Anneke Thompson cautioned that while this increase in retail spending may seem subdued by long-term standards, it could be the final evidence needed to convince the Reserve Bank of Australia (RBA) to raise the cash rate during their next board meeting on 7 November.

Given the latest data showing inflation at 5.4 per cent for the September quarter, economists have adjusted their predictions for the cash rate, with expectations of another rate hike by the end of the year gaining momentum.

The ABS data also revealed that cafes, restaurants and takeaway food services remained relatively unchanged, with a 0.0 per cent growth ($1.2 million) in September, in seasonally adjusted terms.

This underscored the “precarious nature of business conditions in this sector”, according to Ms Thompson.

CreditorWatch’s September Business Risk Index data showed the business failure rate in this sector is already at 6.80 per cent – exceeding the business failure rate of all other industries.

“This sector has been struggling with high food, labour, utilities and insurance prices, but now has the added challenge of plateauing demand, just as we are entering the busy Christmas months,” Ms Thompson said.

[Related: 3Q CPI shift cash rate expectations]