Spending on nice-to-haves has started to drop off as rapid interest rates and cost of living pressures continue to chew into household budgets.
Official retail sales data recorded a slightly higher-than-expected lift of 0.4 per cent in March, which followed a modest 0.2 per cent uptick in February.
But given the Australian Bureau of Statistics retail trade numbers can be driven by people buying more as well as inflation – which remains exceptionally high – Commonwealth Bank of Australia economist Belinda Allen said this was a soft result.
In nominal terms, retail trade was flat over the quarter and down from 0.9 per cent in the December quarter.
“Given the rapid rate of population growth per capita spending is even weaker,” Ms Allen said.
Spending on food and eating out drove the monthly improvement in retail trade, which ABS head of retail statistics Ben Dorber chalked up to high food inflation.
“Businesses in cafes, restaurants and takeaway food services are passing on their rising costs to consumers through price rises, while also benefiting from strong demand driven by the continued return of large-scale cultural and sporting events,” he said.
Sales across cafes, restaurants and takeaway food services lifted 1.5 per cent, whereas food retailing lifted one per cent.
But spending on discretionary items has started to dry up.
Clothing, footwear and personal accessory retailing fell the most, dropping one per cent, followed by household goods, which sunk 0.4 per cent.
Mr Dorber said the bureau’s quarterly retail sales volumes, due next week, would shed light on how high inflation was influencing turnover growth numbers.
The retail trade data follows the Reserve Bank’s decision to hike interest rates on Tuesday by another 25 basis points.
Treasurer Jim Chalmers said the rate hike was “pretty blunt, pretty brutal” reminder of the challenges in the economy in the lead up to the May budget.
“Particularly this inflation challenge, which your viewers are feeling every day as they feel these cost-of-living pressures,” Dr Chalmers told Nine.
Opposition finance spokesperson Jane Hume said many Australians were struggling to put food on the table as evidenced in an interim cost of living report from a parliamentary committee.
“Despite Labor’s promise to lower the cost of living prior to the election, cost of living pressures have only compounded since Labor came to government and now more Australians are turning to charities for assistance to make ends meet,” she said.
As well as delivering another rate hike on Tuesday, the RBA governor previewed updated economic forecasts in a statement, with the central bank now forecasting GDP rising 1.25 per cent in 2023 – down from 1.6 per cent in an earlier forecast.
The bank also sees inflation falling more quickly in 2023.
In a speech on the bank’s updated forecasts on Wednesday, RBA head of economic analysis Marion Kohler said stronger-than-expected population growth was impacting the economy in several ways.
This population growth, triggered by the faster-than-anticipated return of overseas students and backpackers paired with fewer people leaving Australia, was driving demand for rentals but would also boost investment in new dwellings in the long run.
Dr Kohler said the bigger population would also fuel employment growth, although because most of the arrivals are students, this would be concentrated in larger cities and in sectors like hospitality.
She also said the improving property market could lift consumption levels, with higher asset prices often leading to more spending as people feel wealthier.
© AAP 2023
