Retail sales up 0.6 per cent as consumers continue to spend despite rate rises and inflation

Five interest rates since May have not slowed the Aussie shopper, with retail sales rising strongly in August and likely to trigger another rate rise next week.

Consumers are spending money at a cracking pace, splurging at department stores, cafes and on takeaway meals, which will likely force the hand of the Reserve Bank to lift official interest rates by another 50 basis points next week and take some of the heat out of the economy.

Partly shielded by hundreds of billions of dollars in savings stashed away during the Covid-19 pandemic and fuelled by new-found freedoms as restrictions and travel bans were lifted, Australian shoppers have not let five successive interest rate hikes since May slow them down.

Retail sales for August rose a healthy 0.6 per cent, the Australian Bureau of Statistics says, to easily beat market expectations of a 0.4 per cent rise in sales and mark the eighth consecutive rise in monthly retail sales. Sales turnover increased a heady 1.3 per cent in July.

The August spending spree was driven by sales at department stores and consumers picking up household goods, with any hopes interest rate rises would take the inflationary heat out of the economy – and the buying energy out of shoppers – failing to land a punch.

Food and eating out was also a hit as consumers enjoyed fresh freedoms by eating at cafes and restaurants but also enjoying takeaway meals.

The ABS released the latest retail trade figures on Wednesday morning, revealing retail sales for August rose 0.6 per cent to $34.881bn. While inflation helped lift the value of retail sales, it is believed volumes were also more buoyant as shoppers scooped up goods, ate out more and travelled more widely.

In terms of the strongest retail categories for August, the ABS said department store sales were up 2.8 per cent; clothing and household goods rose 2.6 per cent; cafes, restaurants and takeaway were up 1.3 per cent; and food retailing was up 1.1 per cent.

Clothing, footwear and personal accessories fell 2.3 per cent and other retailing was down 2.5 per cent.

But the rosy mood among consumers is likely to attract the eye of the RBA which is desperate to knock down inflation, take some of the wind from the sails of consumers, and likely resort to another interest rate rise next Tuesday to accomplish this.

“The RBA will view this growth in spending consistent with the consumer still having a high willingness to pay in a high inflation environment,” Barrenjoey chief economist Jo Masters said. “We expect the RBA will raise the cash rate by 50 basis points at their October meeting next week.”

She said there remained fundamental reasons the strength in retail sales would continue until the end of this year.

“The labour market remains supportive, wages growth has accelerated, and government support – tax offsets and pandemic payments – continues to flow,” she said.

“Moreover, the economic headwinds are yet to hit – the transmission of monetary policy to household cash flows is taking longer than normal and the effect of falling house prices will take some time to materialise in consumer spending.”

Meanwhile, Australian Retailers Association chief executive Paul Zahra said the August retail sales figures were another outstanding result.

“As we approach the Christmas trading quarter – the most critical time of year on the retail calendar – it’s encouraging to see retail sales maintain their strong momentum,” he said.

“Despite an uncertain economic outlook, rising inflation and cost-of-living pressures, consumers are continuing to open their wallets and spend at record levels.

“Having said that, we remain cautious about the economic outlook.

“We haven’t seen the full impact of the RBA’s interest rate increases flow through the economy and inflation is yet to reach its forecast peak, so we could see a softening of sales as we enter 2023.”