Resilience in Australian household spending continued in March with retail sales rising by a further 1.6%, while growth in underlying demand was stronger than expected over the first quarter despite prices accelerating. The high level of household savings and a tightening labour market were key supports to demand.
Retail Sales — March | By the numbers
- National retail sales lifted for a third month running rising by 1.6% in March to $33.6bn, in line with the preliminary estimate.
- 12-month retail sales lifted from 9.1% to 9.4%.
- Retail volumes (real terms) posted a stronger-than-expected rise of 1.2% in Q1 (vs 1%), increasing growth over the year from 3.5% to 4.9%. Volumes had surged by 7.9% (revised lower from 8.2%) in Q4 on reopening from the Delta lockdowns.
- Retail prices accelerated by 1.7% in the quarter to be 3.3% higher over the year.
Retail Sales — March | The details
Australian household spending in the retail sector was resilient over the first quarter of 2022 amid the headwinds of Omicron, major flooding on the east coast and rising prices. It is also notable that spending increased despite the weakening in measures of consumer sentiment. For the month of March, retail sales lifted by 1.6% taking the increase over the first quarter to 2.9%. Breaking this down, rising prices contributed 1.7ppts to quarterly retail sales, though underlying demand growth was still solid adding 1.2ppts.
After Q4's reopening surge, volume growth moderated in Q1, though as highlighted above, a 1.2% quarterly rise is still a robust result. The impact on demand from Omicron and the floods looks to have been minor, while high accumulated savings and a strong labour market gave households a buffer against rising prices.
The main area of weakness was in food (-1.5%q/q), with lower sales volumes going through as supermarkets pulled back on discounting due to rising input costs. Excluding food, discretionary sales lifted by a sharp 2.9% in the quarter, well above the headline increase in volumes. With Covid concerns abating there was pent-up demand for going out and for a return to travelling domestically. There were associated rises in cafes and restaurants (8.3%q/q), clothing and footwear (3.6%q/q) and department stores (4.3%q/q). Household goods saw a 0.9% contraction with supply chain disruptions leading to product shortages and pushing up prices, though volumes had surged in the prior quarter (8.5%).
Turning to prices, Q1's overall increase of 1.7% was the fastest since the tax changes introduced back in 2000. In annual terms, retail prices lifted by 3.3%. Apart from the lift in prices after the initial lockdown reopenings, price growth in the sector was last running this strong during the previous episode of high inflation in Australia after the global financial crisis.
The fastest rise in prices in Q1 was in the food category (2.7%) reflecting less discounting and higher input costs. Household goods prices continued to rise (1.6%) amid supply chain pressures. More modest price rises were seen across the other categories: clothing and footwear 0.8%, department stores 0.2%, other retailers 1.1% and cafes and restaurants 1%.
Retail Sales — March | Insights
Household demand for retail sales was resilient through a tough start to the year that included a significant Omicron wave, major floods and rising inflation. Despite consumer sentiment weakening due to these headwinds (and expectations for higher interest rates), discretionary demand lifted sharply (2.9%) to drive the increase in volume growth (1.2%). On a pre-Covid comparison, discretionary volumes (+16%) are comfortably outpacing headline volumes (+10.7%), reflective of the strong demand environment. High accumulated savings and a tightening labour market are supporting household demand despite higher inflation.
