Increase in Australian Retail Sales

By Stella Qiu and Wayne Cole

SYDNEY (Reuters) – Australian retail sales saw their largest increase in ten months in November, spurred by Black Friday discounts that attracted cost-conscious shoppers. However, this rise fell short of forecasts, indicating that it may not prevent anticipated rate cuts.

Analysts believe that increased demand may have been pulled forward from Christmas, maintaining market speculation that the Reserve Bank of Australia (RBA) could ease policy in February.

Retail sales increased by 0.8% on a seasonally adjusted basis, following a 0.5% rise in October, according to data from the Australian Bureau of Statistics (ABS). Expectations had projected a 1.0% increase for November.

The Australian dollar fell by 0.2% to $0.6204 following the release of these figures.

Sales were up 3.0% year-on-year, totaling A$37.1 billion ($23 billion). The ABS highlighted that promotional activities extended throughout the month of November, not just during the Black Friday weekend.

Sales in department stores rose by 1.8%, and spending in cafes and restaurants increased by 1.5%.

Ben Udy, lead economist for Oxford Economics Australia, noted that the popularity of Black Friday sales in Australia has complicated seasonal adjustments, making it challenging to gauge the true strength of consumer spending.

Sales for the previous December had sharply declined after a spike in November.

The sales outlook has improved somewhat due to slowing inflation and significant income tax cuts. However, the increase in consumer spending has been disappointing, prompting the central bank to adopt a more dovish stance last month.

The RBA has maintained a steady interest rate for over a year, considering the current cash rate of 4.35%, increased from a record low of 0.1% during the pandemic, restrictive enough to control inflation while preserving employment.

A drop in core inflation led to heightened market expectations for a rate cut in February, with swaps indicating a 60% chance and futures suggesting a 78% probability.

The Commonwealth Bank of Australia anticipates a quarterly inflation rate of 0.5% for the fourth quarter, while Nomura has lowered its forecast to 0.4%, much lower than the RBA’s estimate of 0.7%.

Andrew Ticehurst, a senior economist at Nomura, mentioned, “We previously assigned a ~60% probability to a first 25bp RBA easing in February, now likely risen to at least 70%.”

A rise in the unemployment rate in December could further affirm this outlook.

The RBA will receive the December retail sales report and updates on the unexpectedly tight labor market before its next decision on February 18.