Chris Zappone
July 4, 2012
The Age
Retail sales rose more than expected in May as rate cuts and government assistance for students and the carbon tax began flowing into households.
Sales for the month rose 0.5 per cent from April, beating the 0.2 per cent increase expected by economists.
Retail trade rose in the month to a seasonally adjusted $21.307 billion, compared with a revised $21.199 billion in April, the Australian Bureau of Statistics said.
The ABS revised the April figure to show a 0.1 per cent increase – making it five consecutive monthly increases and the longest string of rises for the gauge since September 2010.
The Reserve Bank slashed interest rates by half a percentage in May, a move it followed up with a further quarter-point cut in June. Both cuts would have helped those repaying variable interest-rate loans. The central bank opted to leave its key cash rate unchanged at 3.50 per cent yesterday.
Commonwealth Bank economist James McIntyre said the carbon tax household assistance package was delivered in mid-May and would run though to mid-July.
“On our estimates we thought the sum of that would be spent in the retail sector and it looks like that happened in May,†he said. The assistance will likely deliver strong retail sales readings in June and July.
“But then we should potentially see some weaker number as we stop cycling that mini-stimulus in August,†he said.
Households may also have been cheered by the government’s pledge to lift its assistance for school-age students.
The strength of retail sales made an August rate cut less likely, he said, which helped boost the dollar to $US1.0315 from $1.029 before the data was released.
Among the states, retail sales increased 0.7 per cent in seasonally adjusted terms in New South Wales, its third consecutive monthly rise. In Victoria retail sales rose 0.5 per cent in May, matching the increase in Queensland, the ABS said. In Western Australia retail sales jumped 1.1 per cent for the month.
Rates view
Economists viewed today’s retail sales as further reducing the chances of another interest rate cut by the central bank in the near term.
“Based on the latest numbers it looks like it (the stimulus) is having a positive impact…it looks like the stimulus applied to the domestic economy is starting to work.
“We have a pretty clear indication there from the Reserve Bank they have done enough for the time being while they assess what impact the stimulus is having,” said Michael Blythe, chief economist at Commonwealth Bank.
Su-lin Ong, senior economist at RBC capital markets, also expects the RBA to left rates where they are for now.
“We suspect that retail activity was helped by the RBA’s 50-point cut at the start of the month as well as the start of the tax compensation payments to the middle income earners,” she said. “That may have boosted sales activity a little in May and the odds are that’s continued into June.”
“This is a number that will give the RBA some comfort, their policy is gaining some traction it could keep them on the sidelines for a little while longer,” Ms Ong said.
Joshua Williamson, senior economist at Citigroup, notes consumption increased even during the recent flare-up of fears involving European debt defaults.
“It shows consumers are starting to react to the easing by the Reserve Bank,” he said.
“It’s another sign that the non-mining economy is actually doing quite well when the European sovereign debt crisis is at its worst,” Mr Williamson said.
“This suggests there’s a risk that the RBA won’t even cut in September, unless we see a worsening of the situation in Europe.”
BusinessDay with AAP, Reuters
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