Interest rates pressure and costs keep lid on retail sales

Another poor month for retailers confirms sales have flatlined in 2024 as household budgets buckle under intense cost of living pressures and high interest rates.

Retail spending growth has stalled in 2024 as cost-of-living pressures and higher interest rates hit household budgets. Picture: NCA NewsWire / Damian Shaw

A hoped-for rebound in retail spending failed to materialise last month, extending this year’s stalling sales growth as high interest rates and intense cost-of-living pressures hit household budgets.

Retail sales inched up only 0.1 per cent last month, following March’s surprise 0.4 per cent drop, according to the Australian Bureau of Statistics.

The latest figures show consumption has stalled but not collapsed, ahead of tax cuts from July that most analysts expect will help drive a lift in spending into the end of this year.

Despite the flat start to the year, sales were up 1.3 per cent on a year earlier, the seasonally adjusted ABS figures showed.

“There is an argument that support coming via the stage three tax cuts and various cost-of-living measures from both federal and state governments will boost household disposable income, possibly providing a tailwind for consumer spending over the second half of this year and keeping inflation higher for longer,” Commonwealth Bank senior economist Belinda Allen said.

“However, the counterpoint is that consumers are currently behaving very cautiously. This is consistent with the depressed levels of consumer sentiment and surveyed measures of pessimism towards family finances.”

Westpac’s recent consumer sentiment survey found 80 per cent of respondents planned to save half or all of the tax relief.

The Reserve Bank has made it clear that what happens to consumption over the balance of this year remains a key uncertainty as it attempts to bring inflation back under control without tipping the economy into recession.

After March quarter inflation figures showed a worrisome reacceleration in price pressures and triggered talk that rates might have to move higher, UBS chief economist George Tharenou said the ongoing weakness in retail sales “reduces the urgency” of the RBA to hike again but he held to his forecast that rate cuts would arrive in February next year.

Mr Tharenou said it was mainly younger and mortgaged Australians who were cutting back on spending and this was “largely offset” by older and debt-free households enjoying the returns from higher interest rates and booming asset prices.

“Given this mixed backdrop, but with inflation pressure remaining relatively sticky, UBS still expects the RBA will keep rates higher for longer,” he said.

ABS figures showed a 0.5 per cent drop in food sales, which accounts for 40 per cent of retail spending, drove the weak monthly result as the early Easter weekend pulled forward spending into March. Excluding food retailing, retail spending was up 0.7 per cent, according to National Australia Bank.