Australia retail sales surge past expectations in September

Investing.com-- Australian retail sales grew much more than expected in September, tracking a strong start to spring shopping and feeding into expectations that inflation will remain elevated in the coming months.  

Retail sales grew 0.9% in September from the prior month, data from the Australian Bureau of Statistics (ABS) showed on Monday. The reading was well above expectations for growth of 0.3%, and accelerated from the prior month’s reading of 0.3%. 

The ABS said that a warmer-than-usual start to the Australian spring boosted sales at department stores, while the release of a new iPhone model also aided overall sales. 

ABS officials also noted that while sales grew more than expected in September, average retail sales growth this year remained subdued. Sales were only up 1.5% from a year ago, as rising living costs saw customers tighten their purse strings.

But this was somewhat countered by persistent strength in the labor market, which is expected to keep retail spending trending higher in the coming months. This in turn is expected to factor into higher inflation, with recent data indicating a resurgence in price pressures. 

Consumer inflation grew more than expected in the third quarter, boosted by higher fuel prices and as discretionary spending remained steady. 

Markets expect this trend to push the Reserve Bank of Australia into further raising interest rates when it meets next week, with a bulk of analysts pricing in a 25 basis point hike. Signs of strength in retail spending also give the RBA more economic headroom to hike interest rates and keep them higher for longer.

The Australian dollar rose 0.2% after Monday's reading, as markets priced in a greater chance of a rate hike. The ASX 200 stock index sank 0.8% on this notion.

Further increases in interest rates are expected to pressure the Australian economy, potentially denting retail spending in the coming months. The jobs market is also expected to cool, as higher rates limit economic activity.