Retail sales figures miss lends support to RBA interest rate cuts

Despite heavy discounting during the Black Friday sales, consumers remain cautious amid elevated interest rates and above-target inflation.

Retail sales role by 0.8 per cent in November. Picture: NewsWire / Luis Enrique Ascui

The case for an interest rate cut by the Reserve Bank in February has been bolstered after November retail spending data disappointed, even as cost-conscious shoppers benefitted from heavy discounting during the Black Friday sales.

Retail spending rose by 0.8 per cent in November, the Australian Bureau of Statistics said on Thursday, its strongest monthly result since January, and up from 0.5 per cent in October.

The fresh retail reading, however, undershot economists’ expectations of a 1 per cent increase, with consumers remaining cautious despite cost-of-living support and the growing prospect of rate cuts.

With the spending figures also missing the RBA’s own forecasts, Commonwealth Bank economist Harry Ottley said the retail data did not pose a barrier to rate cuts.

“In our view, the increase in household consumption to this point has been muted and does not pose a risk to our view of interest rate cuts in the near term,” Mr Ottley said, tipping a quarter-point cut by the central bank at its February 17-18 meeting.

Coupled with Wednesday’s mild inflation report, which showed underlying inflation at 3.2 per cent and just above the RBA’s 2-3 per cent target band, KPMG chief economist Brendan Rynne similarly argued that the retail figures added to the case for a rate cut in February.

“While we still believe a rate cut in the June quarter is the most likely outcome, recent data flows have raised the possibility of an earlier cut,” Dr Rynne said.

Others said the increasing popularity of the Black Friday sales event meant spending momentum was unable to be captured effectively by the ABS’ seasonal adjustment process, rendering the figures less valuable.

Oxford Economics Australia’s Ben Udy said: “This makes it ­extremely difficult to get a read on the underlying strength of ­con­sumption from these data, as the solid rise is likely to be offset by a contraction in sales in ­December.”

Following November’s Black Friday in 2023, retail spending plunged in December as consumers pulled forward their spending to take advantage of pre-­Christmas promotions.

The RBA is closely watching the economy for signs that household demand remains subdued amid concerns Labor’s overhauled tax cuts could lend support to a boost in consumer spending, consequently exacerbating inflationary pressures.

Recent retail figures suggest only a gradual recovery in consumer activity, with households largely choosing to save rather than spend the additional income.

Across November, spending rose 3 per cent compared to a year earlier at $37.1bn, the ABS reported, noting promotional activity had stretched across the entire month rather than being limited to the Black Friday weekend.

The ABS figures showed the spending increase was broad-based with every single retail rising, especially those geared towards Black Friday.

Department stores and clothing and footwear retailers posted the strongest results, up 1.8 per cent and 1.6 per cent, respectively.

Spending at cafes, restaurants and takeaway outlets also reported an increase, up 1.5 per cent.

Food and household goods retailing recorded more muted spending growth, up 0.5 per cent and 0.3 per cent, respectively. The ABS’s “other retailing” category – which includes cosmetics, pharmaceuticals, sports and recreation goods – rose 0.3 per cent.

Despite the weaker-than-­anticipated result, Abhijit Surya of Capital Economics said the data suggested there was momentum behind retail spending heading into 2025 as slowing inflation, income tax cuts and wages growth flowed to consumers

“With households’ real disposable incomes set to keep rising over the coming year, we think there’s scope for sustained gains in private consumption,“ he said.