Australian retail sales +8.5% in March; Q1 volumes +0.7%

Australian retail sales posted their largest monthly rise on record with an 8.5% surge in March driven by stockpiling at the supermarkets ahead of the tightening of social distancing measures to control the COVID-19 spread. The other main development was a weaker-than-expected 0.7% rise in retail volumes in the March quarter, while prices lifted by their most in a single quarter in 19½ years as supply chains became stretched by unprecedented demand for essentials.  

Retail Sales — March  | By the numbers 

• Nominal retail turnover surged by 8.5% in March to $30.111bn coming in above the consensus forecast for an 8.0% rise. Sales in February were up by 0.6%m/m. In annual terms, turnover growth accelerated from 1.8% to 10.1% to its fastest since pace since July 2001. 

• Retail volumes came in below consensus at 0.7% in the March quarter (prior: 0.5%) against an expected rise of 1.8%. In annual terms, volume growth advanced from 0.3% to 1.1%. Retail prices were up strongly by 1.9% in Q1. 

Retail Sales — March | The details

As indicated in the ABS's preliminary estimate two weeks ago, today's release confirmed that retail spending posted its strongest monthly advance on record in March since these data were first compiled back in early 1982. The table below provides the breakdown of the details across the sector and highlights the full impacts of the COVID-19 coming through in spending patterns. 

In the lead up to the implementation of social distancing measures, households stockpiled at supermarkets and grocery stores (23.0%m/m), liquor stores (30.2%m/m), other specialised food stores (such as butchers and bakeries) (30.5%m/m) and at pharmacies (22.3%m/m). 

At the same time, households turned away from shopping for clothing and footwear (-22.6%m/m) and stopped going to restaurants and cafes (-22.9%m/m), likely even before the Federal government moved to prohibit dine-in options by the back end of March.

Details across volumes and prices are presented in the summary table, below. The overall lift in volumes of 0.7% was well short of expectations (1.8%) and was weighed by plunging demand for clothing and footwear (-12.1%), cafes and restaurants (-8.4%) and department stores (-5.2%) — all clearly viewed as non-essential and as posing an elevated health risk in the face of the COVID-19 pandemic. 

However, the 6.4% surge in demand for food in a single quarter is unlike anything the nation has seen before and smashed the previous high of 3.4% that came all the way back in Q4 1988.   

In that context, it is not all that surprising that food prices lifted by their most in a quarter in 19 years at 2.6% as supply chains were stretched to the limit to try and keep up with an unprecedented level of demand. The summer bushfires were likely to be adding to supply chain pressures here, particularly in New South Wales, and today's detail on prices was consistent with last week's inflation data in that regard (see here). Note also that volumes in New South Wales were down 0.3% (they also fell 0.7% in the ACT) against increases in all the other states, again pointing to bushfire-related impacts. The strong rise in food prices drove the overall 1.9% lift in retail prices, which was its strongest quarterly rise since Q3 2000.  

Retail Sales — March | Insights

Today's result confirms the unprecedented surge in demand for food and other essentials in the lead up the formal announcement of the strengthening of social distancing measures. As supply chains came under enormous pressure prices lifted sharply. The downside surprise on volumes is notable and while retail spending is only around 30% of total household consumption, demand for services is also likely to have come under pressure over Q1 with the effects of the bushfires and social distancing in play. Over April, the effect of social distancing measures ramped up and labour market conditions rolled over with the retail sector likely to be one of the most impacted sectors in the domestic economy by the COVID-19 crisis.