September retail spending jumps ahead of Melbourne Cup Day rates call

With monthly retail spending rising the most since January, pressure is mounting on the Reserve Bank to hike rates when its board meets next week.

Retail spending jumped higher in September, as shoppers embarked on a spending spree, adding further pressure on the Reserve Bank to hike rates on Melbourne Cup Day.

Turnover for retail goods and services grew 0.9 per cent over the month, fresh data released by the Australian Bureau of Statistics on Monday shows, led by a sharp jump in purchases at department stores and for household goods.

Economists were expecting an increase of just 0.3 per cent, after an upwardly revised 0.3 per cent increase in August.

Following the release of hotter-than-expected quarterly inflation numbers last week, the retail spending figures will further strengthen the case for the RBA to resume its aggressive round of monetary tightening when its board meets next Tuesday.

The retail spending result was three times consensus forecasts of a 0.3 per cent increase. Picture NCA NewsWire / Seb Haggett

The RBA is hiking interest rates in order to slow spending and bring inflation back to its 2 to 3 per cent target range. However, the central bank is wary of increasing rates too quickly such that it causes an unnecessarily sharp contraction.

UBS chief economist George Tharenou said the retail figures “reinforces our view the economy is surprisingly resilient, and adds to the case to hike”.

“Indeed, if this continues, it adds to the risk of an additional RBA hike” in February, he said.

ANZ economists said much of the jump in retail spending was driven by temporary factors and broader trends showed turnover remained subdued.

“The fact that it has taken ten months to get back to this level highlights the underlying weakness in the retail sector right now, particularly given the rapid pace of population growth,” ANZ economists Madeline Dunk and Adelaide Timbrell said in a note to clients.

“We expect that spending growth will continue to remain soft throughout 2023 but are looking for a lift in 2024 as real household incomes start to grow again.”

The hotter-than-expected retail spending figures will strengthen the case for a November rate hike. Picture: NCA NewsWire / Martin Ollman

ABS head of retail statistics Ben Dorber said while the strong increase in September was the largest since January, spending remained subdued.

“The warmer-than-usual start to spring lifted turnover at department stores, household goods and clothing retailers, with more spending on hardware, gardening, and clothing items,” Mr Dorber said.

The release of the new iPhone and the introduction of the energy rebates in Queensland also added to stronger retail turnover.

However, consumers didn’t splurge across the board. Spending at cafes, restaurants and takeaway outlets was flat in September after being elevated for much of the year.

Retail turnover growth was up in all states and territories, led by a 1.8 per cent rise in Tasmania.