Business confidence Chief Economist Consumer sentiment CreditorWatch Economics News Retail sales
4 mins read

Flat retail sales flat in December give RBA something to think about

Detail:

Retail sales were essentially unchanged in December (-0.1% m/m), 4.6% higher than in December 2023. Overall turnover is still a whopping 33% higher than before COVID, much of this reflecting much higher prices.

Bottom line:

Markets will be more focused on Trump’s tariff wars than Australian data for the next little while but important data points like today’s Retail Sales data will enter the RBA’s thoughts as it decides whether to cut Australian interest rates at the February Board meeting in two weeks’ time.

Today’s data was good news for both inflation (low implicit price deflators in the second half of the year, but heavily impacted by lower goods prices, which are over-represented in the Retail Sales survey) and stronger turnover volumes (albeit supported by price discounting and promotional activity).

At the margin, this might suggest less need for the RBA to reduce interest rates, however, I expect the bank to reward borrowers for the progress made in slowing inflation, and in so doing, insure against a further slowing in growth or an unnecessary rise in the unemployment rate.

That’s all before the very large tariff increases now beginning in the northern hemisphere, which will impact prices in countries that levy tariffs and no doubt also affect global supply chains and pricing in coming months.

Australia has mostly managed to avoid tariff disputes in the past and has not retaliated when tariffs have been levied on it, but of course businesses will be impacted to the extent the US imposes global tariffs, and by the indirect impacts of weaker global and Chinese growth, weaker share markets or a weaker $A.

Businesses will need to take views not only on the extent of tariffs being levied, but on their likely duration also. As noted last year, this is likely to be an unsettling time for business.

 

  • After the relative strength in sales in October (+0.5% m/m) and November (+0.7% m/m), that has to be seen as a relatively solid outcome, with trend growth having strengthened through 2024, no doubt supported by cost of living relief and the mid-year tax cuts.
  • The ABS commentary noted Cyber Monday occurred in early December this year, boosting sales in electronics categories. Big discounts and ongoing promotional activity favourably impacted overall household goods sales trends also. After a correction from the spikes in sales in the lockdown periods of COVID, household goods sales are once again strengthening, no doubt supported by sharper pricing. Department store sales and Clothing and Footwear sales are broadly recording flat trends, while Cafes, Restaurants and Takeaway sales have strengthened a little in recent months.
  • The ABS also released volume data for retail sales today – this showed the number of goods and services in the retail trade sample rising 1% q/q after a 0.5% q/q rise in Q3. This followed two declining quarters in the first half of 2024. This fits with the RBA’s forecast that consumer spending will strengthen in real terms, supporting a forecast strengthening in GDP for 2025. This is all before the impacts of tariffs and trade wars, which will need to be incorporated into forecasts and should reduce growth and boost inflation at the margin.
  • The Implicit Price Deflator – a different measure of inflation – showed pleasingly low rates of price increase for consumers, but not necessarily for businesses, suggesting as the ABS also does, that discounting drove the increase in turnover. The IPD rose 0.4% q/q in the December quarter after rising 0.6% q/q in the September quarter. These rate of increase are well down on the rates in the first half of the year, and annualise to a price increase just over 2%. Before extrapolating this to all goods and services, remember the retail sales survey is goods heavy, and goods prices have been rising more slowly than services prices in recent quarters.
  • By state, Western Australia remains the strongest, having jumped ahead in terms of turnover during the border lockdowns of COVID, during which WA’s population grew very strongly. QLD is the second strongest, though most states, including the two largest states have recorded strengthening growth in recent months. Only the two territories have recorded broadly flat sales trends in the past six months.

 

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business business confidence Chief Economist consumer sentiment consumer spending data economic insight economist economy news retail
Ivan Colhoun
Chief Economist
Ivan joined CreditorWatch as Chief Economist in October 2024. He is a highly experienced chief economist and keynote speaker on the economy and financial markets. Most recently, Ivan was Chief Economist, Corporate & Institutional Banking for National Australia Bank, but has also been Chief Economist for Qantas and Chief Economist (Australia) for ANZ and Deutsche Bank. Ivan has also consulted to SEEK, IATA and Virgin Australia. Ivan holds a Bachelor of Economics with Honours from the University of Tasmania and commenced his career at the Reserve Bank of Australia.
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