By Stella Qiu
SYDNEY (Reuters) -Australian retail sales firmed for a third straight month in October as tax cuts flowed through to wage packets and consumers became more confident that interest rates would not increase again, although policy easing still looked distant.
Data on inventories proved to be a bit of a drag on the economy in the third quarter, but contribution from net exports suggests growth still likely picked up.
Data from the Australian Bureau of Statistics (ABS) on Monday showed retail sales rose 0.6% in October from September, when they grew a meagre 0.1%. Analysts had looked for a gain of 0.4% in October.
Sales were up 3.4% on a year earlier at A$36.7 billion ($23.9 billion), with the ABS noting some retailers had taken to discounting early ahead of the November Black Friday events.
"After a steady result last month retailers told us that sales activity grew in October ahead of the Black Friday sales," said Robert Ewing, head of business statistics at the ABS.
"The rise in discretionary spending was driven by online discounting events while people also spent more on electrical goods, particularly televisions and other audio-visual equipment."
The outlook for sales has been helped in part by a slowdown in inflation and the large cuts to income taxes. Consumer sentiment, in particular, jumped for a second straight month in November and reached a 2-1/2-year high.
The Reserve Bank of Australia has kept interest rates at 4.35% for an entire year now and all but ruled out near-term rate cuts, in part due to the remarkable resilience of Australia's labour market.
"The downside risk (to consumption) has certainly reduced, reinforcing that the RBA should not be in a rush to cut rates given too high services inflation," said Tapas Strickland, head of markets economics at the National Australia Bank (OTC:NABZY).
NAB expects another strong increase for retail sales in November.
The RBA had expected household spending to rebound late this year given the billions in tax cuts delivered from July. However, policymakers flagged the strength of the recovery as a crucial factor in determining the easing prospects.
Markets imply almost no chance of a cut in the 4.35% cash rate at the RBA's next meeting on Dec. 10, and only a 24% chance of a move in February.
A rate cut is not fully priced in until May next year.
ANZ expects economic growth is likely to have picked up to a quarterly gain of 0.5% in the third quarter, after three quarters of subdued 0.2% expansion.
"The accounts should show strong growth in household incomes," said Adam Boyton, head of Australian economics at ANZ. "That reflects the impact of ongoing growth in wages and salaries, the Stage 3 tax cuts and cost of living measures."
($1 = 1.5387 Australian dollars)
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