Interest rates may not change as retail spending declines

INTEREST rates could stay unchanged before Christmas after shoppers tightened their purse strings in September and retail spending dipped.

INTEREST rates could stay unchanged before Christmas after shoppers tightened their purse strings in September and retail spending dipped.

Sales fell by a worse-than-expected seasonally-adjusted 0.2 per cent to $19.7 billion in September compared to August.

Economists had forecast a 0.5 per cent rise at the cash register but despite rising confidence, consumers were more reluctant to spend after the Government's $900 stimulus handouts dried up.

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Their decision to keep hold of their cash came before the Reserve Bank's decision to lift official rates in October and then again on Tuesday.

Some economists believe the fall in retail spending could see the central bank put the brakes on any expected rates rise next month before the all-important Christmas spending season.

ICAP economist Adam Carr said, "the data really does hammer home the point that the RBA will be gradual in its tightening cycle".

ANZ economist Alex Joiner said the high levels of consumer confidence seen in September had not translated into spending.

"I suppose that's something that will give the RBA some scope for pausing on rate hikes in December," he said.

The Northern Territory recorded the largest drop in retail spending of 0.7 per cent, followed by Queensland with sales down 0.6 per cent in September.

Across the nation the biggest hit was felt by department stores, down 2.9 per cent, followed by clothing and footwear, falling 0.8 per cent.

Australians, however, showed that while they might not be investing in new wardrobes, they are still keen to eat out with cafe, restaurant and takeaway food sales rising in September by 1 per cent.

Treasurer Wayne Swan said: "There are signs of resilience and Australians should take heart that we are the only advanced economy to grow over the past 12 months.

"But as I've been saying for some time, our recovery remains fragile."

Other data from the Australian Bureau of Statistics released yesterday showed building approvals rose 2.7 per cent in September, to 12,476 units.

September was the last month first-time homebuyers would have benefited from the full boost of the Government's more generous housing grant. It was pared back on October 1.