Rate rises and cost of living pressures squash retail trade growth in April

The country’s retail recession extended into April, as trade stalled in the month under the weight of climbing interest rates and intense cost of living pressures.

Soaring interets rates and cost of living pressures are weighing on retail trade. Picture: NCA NewsWire / Jeremy Piper

The country’s retail recession extended into April, as trade stalled in the month under the weight of climbing interest rates and intense cost of living pressures.

The worse-than-expected result – economists had predicted a monthly rise of 0.3 per cent – was “further confirmation of the slowdown under way in consumer spending,” Oxford Economics head of macroeconomic forecasting Sean Langcake said.

Despite flagging sales in recent months, retail trade remained 4 per cent higher than a year earlier, according to the Australian Bureau of Statistics.

And even after the recent pullback in total turnover, retail trade in the first quarter remained above pre-pandemic trends in real terms, NAB economists said, as households wind down from the heights of the post-lockdown spending spree.

Spending at cafes, restaurants dropped by 0.2 per cent but remained 13 per cent up on a year earlier. Food retailing suffered its first drop, of 0.1 per cent in April, but that was after 13 straight monthly increases and was still 6 per cent up on a year earlier.

Australian Retailers Association chief executive Paul Zahra said “while the numbers are still positive – the slowdown in retail spending is … already in effect”.

“Cost-of-living pressures are the greatest current concern for retailers and their customers and this continues to affect retail sales – a trend we expect to see continue in the coming months,” Mr Zahra said.

A jump in spending on winter clothes through a cold April helped prop up overall retail monthly turnover, with clothing and footwear sales up by 1.9 per cent, and turnover in department stores by 1.5 per cent, the seasonally adjusted figures showed.

These were the only two categories to rise, however, and the ABS figures showed spending on household goods fell by 1 per cent and for the third straight month, leaving a year-on-year decline of nearly 5 per cent.

Analysts believe Australia is already in the grips of a “retail recession”, after spending on shopping and in cafes and restaurants failed to keep up with inflation through the six months to March.

After 11 rate hikes since May last year, the Reserve Bank has recently strengthened its rhetoric about the need for further policy tightening, saying that “further increases in interest rates may still be required” to bring inflation back under control.

Citi chief economist Josh Williamson, however, said the “possible plateauing” of retail trade added weight to his view that the RBA would hold rates at 3.85 per cent at its June 6 board meeting.

“In the short term though, $300bn in excess household savings should support total household consumption, which comprises a wider number of essential goods and services not included in the monthly retail trade data,” Mr Williamson said.

Retail trade dropped by 0.4 per cent in NSW and by 0.1 per cent in Victoria, but increased by 0.1 per cent in Queensland, data showed.

An AFL festival and the LIV golf tournament in Adelaide boosted retail trade in South Australia, where spending lifted by 0.6 per cent. That was still below the nation-leading 1 per cent increase Western Australia.

The largest fall was in Tasmania, where retail spending plunged by 1.5 per cent.