Australia retail sales rise more than expected in January

By Ambar Warrick

Investing.com -- Australian retail spending grew more than expected in January after a sharp drop in the prior month, data showed on Tuesday, although headwinds from high inflation and rising interest rates still weighed.

Retail sales grew 1.9% in January from the prior month to A$35.09 billion (A$1 = $0.6744), data from the Australian Bureau of Statistics showed (ABS). The reading was higher than expectations of 1.5% and a 4% drop in December.

The strong reading was driven largely by non-food industries recovering sharply from a drop in the prior month. But restaurants and cafes also saw a sharp rebound in sales, owing to a slew of cultural events during the month.

Still, sales in January were largely in line with levels seen over the past five months, indicating that growth had flatlined. The ABS noted that high inflation and the rising popularity of the Black Friday shopping event in November had somewhat changed consumer spending trends.

Retail sales had slumped in December after rising sharply in the prior month, as consumers took advantage of November’s Black Friday discounts.

But retail spending has still remained relatively constrained over the past few months amid worsening consumer sentiment, as the cost of living grows.

Australian inflation surged to an over 30-year high in December, and is forecast to remain elevated in the coming months. This has invited a more hawkish outlook from the Reserve Bank, which is widely expected to raise interest rates further next week.

The two factors have weighed heavily on the Australian consumer in recent months, and are also expected to dent economic growth in the coming months.

Still, signs of some resilience in retail spending give the RBA more economic headroom to keep hiking interest rates. The central bank has signaled that it will stick to its hawkish rhetoric until inflation returns to its target range, although such a scenario may not be possible until 2025.