29 Jun Record high spending despite rate rise
Consumers took the first interest rate rise in more than a decade in their stride with spending reaching a record high in May, but economists expect further hikes and high inflation will eventually take their toll.
Retail trade grew by a larger than expected 0.9 per cent in May to a record $34.2 billion, to stand a healthy 10.4 per cent higher than a year earlier, the Australian Bureau of Statistics says.
It was the fifth consecutive monthly rise in retail turnover.
“There was growth across five of the six retail industries in May as spending remained resilient,” ABS director of quarterly economy-wide statistics Ben Dorber said on Wednesday.
“Higher prices added to the growth in retail turnover in May. This was most evident in cafes, restaurants and takeaway food services and food retailing.”
Economists had expected a more subdued result given the figures coincided with the Reserve Bank’s first interest rate rise since November 2010, of 25 basis points.
The central bank followed up with a 50 basis point rise in June, the largest increase since February 2000, which triggered a near-eight per cent slump in confidence that has only partially recovered since.
“Retail spending is likely to slow from here as consumers battle with an increase in interest rates and high inflation,” AMP senior economist Diana Mousina said.
“The May data would reflect the RBA’s first interest rate hike, but it may take a few months to see the impact in the retail data as consumers adjust spending.”
Economists expect a further 50 point increase at next week’s July board meeting and potentially another one in August if inflation for the June quarter – due for release on July 27 – proves strong.
“Together with May’s labour force report and the minimum wage decision, this stronger retail trade report confirms our view that the RBA will deliver another 50 basis point rate hike in July,” Commonwealth Bank senior economist Belinda Allen said.
RBA governor Philip Lowe has made it clear in his recent public appearances the board will do whatever it takes to rein inflation back into the two to three per cent target range.
The central bank expects inflation to grow to seven per cent by the end of this year.
In affirming Australia’s triple-A credit rating on Tuesday, Moody’s Investors Service said it expected a significant increase in interest rates from the RBA, leading to a moderation of inflationary pressures in 2023.
Moody’s expects Australia’s economy will grow at 3.2 per cent in 2022, reflecting solid consumer demand growth as households draw down their pandemic savings, and a positive employment outlook.
“In 2023, GDP growth will moderate to 2.6 per cent as tighter monetary policy leads to a modest slowing of consumer demand,” the global rating agency said.
Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)
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