Australian Retail Sales Rebound in August

By Stella Qiu

SYDNEY (Reuters) – Australian retail sales rebounded more than expected in August after a soft July as unusually warm weather brought forward spring spending, suggesting consumers are using extra income from recent tax cuts.

Data from the Australian Bureau of Statistics (ABS) on Tuesday showed retail sales rose 0.7% in August from July, when they edged up 0.1%. Analysts had anticipated a rise of 0.4%.

This beat led the Australian dollar to rise 0.25% to $0.6930, just below its 1-1/2 year peak of $0.6943.

Sales were up 3.1% year-on-year at A$36.5 billion ($25.26 billion), a subdued outcome considering Australia’s rapid population growth.

“This year was the warmest August on record since 1910, which saw more spending on items typically purchased in spring,” said Robert Ewing, ABS head of business statistics.

Spending increased on summer clothing, liquor, outdoor dining, hardware, gardening items, camping goods, and outdoor equipment.

The Reserve Bank of Australia (RBA) has raised interest rates 425 basis points to 4.35% since May 2022 to curb inflation and slow demand. Headline inflation was 2.7% in August, back within the target band of 2-3%, partly due to government electricity rebates.

However, the RBA remains cautious about consumption possibly exceeding expectations as real incomes improve due to government tax cuts in July, providing average wage earners an additional A$1,500 annually.

Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia, anticipates some payback in the September figures. “There are early signs that income tax cuts are boosting consumer spending. Retail sales have surpassed expectations in the last two months, maintaining a high level last month and strong growth in August.”

Card data from major banks indicates consumers are not yet splurging from tax cuts. Westpac’s data indicated steady spending through September, while the Commonwealth Bank noted consumers are utilizing tax cuts to reduce their mortgages.

Swaps suggest a 60% probability that the RBA may lower the 4.35% cash rate in December, even though the central bank has ruled out a rate cut by year-end.

The previously booming property market, which raised concerns about insufficient financial restrictions, is also losing momentum, recording only a 0.4% monthly gain in September.