Australian household spending was robust over the first half of the year, extending the momentum post the Delta lockdowns. Retail sales volumes expanded by 1.4% in the June quarter, defying headwinds to demand from falling real incomes, rising interest rates and weak sentiment.
Retail Sales — June | By the numbers
- National retail sales slowed to a 0.2% rise in June, in line with the initial estimate, coming in at $34.2bn. This was the slowest month-to-month rise in retail sales so far in 2022.
- Base effects advanced 12-month retail sales to 12% from 10.2%.
- Retail volumes (inflation-adjusted sales) increased by 1.4% in the June quarter, stronger than expected (1.2%) and up from Q1's 1% rise. Volume growth through the year lifted from 4.8% to 5.5%.
- Retail prices lifted by 1.7% in the quarter following a 1.8% rise in Q1.
Retail Sales — June | The details
The resilience in household spending highlighted by the RBA again at yesterday's meeting was evident in the latest retail sales report. The pace of nominal spending was 3.2% in the June quarter, up slightly on Q1 (2.9%). The contribution to quarterly retail sales from underlying demand in volumes was 1.4ppts, a little stronger than in Q1 (1ppt), and 1.7ppts from inflation. Although there are many headwinds faced by households from cost of living pressures, rising interest rates and weak sentiment, demand has been robust to this point. Retail volumes were up by 2.5% over the first half of the year, and have risen by 10.4% since the reopening from the Delta lockdowns.
Looking across the categories, the impact of high inflation has weighed most sharply on food and household goods. Volume growth in food contracted by 0.8%, its third straight fall, with prices up by 2.1% due largely to supply constraints and rising input costs for producers. Household goods declined by 1.8%q/q as demand rotated to services categories following the wider reopening of the economy. Supply chain pressures and shortages continue to see household goods rising at pace.
Elsewhere, robust demand in volumes is the main factor driving spending. This is particularly evident in cafes and restaurants (8.6%q/q), which looks to be generating an associated boost for clothing and footwear (3.9%q/q) with people getting out and about and travelling again.
Taking a closer look at prices, inflation pressures were broad based in the sector. Consistent with last week's Q2 inflation report (see here), prices in consumer durables were on the rise: household goods (2.3%q/q), clothing and footwear (2.5%q/q) and department stores (2.6%q/q). Despite strong demand, prices are rising at a more modest pace at cafes and restaurants (1.4%q/q). Food inflation remains strong (2.1%q/q) with groceries contributing heavily to the quarterly CPI.
Turning to the states, volumes advanced across the nation in the June quarter, continuing their post-pandemic expansion. Gains ranged from 2.4%q/q in Queensland to 1.1%q/q in New South Wales. Overall, Western Australia leads the way where volumes are now up by more than 16% since the end of 2019. New South Wales and Victoria, accounting for nearly 60% of national retail trade, have recovered from the Delta wave lockdowns to be around 11% above pre-Covid levels.
Retail Sales — June | Insights
Household retail spending was robust in the June quarter and over the first half of the year, supported by the easing of Covid restrictions, accumulated savings and a strong labour market. Those drivers offset headwinds from falling real incomes, rising interest rates and weak sentiment. The slowing trend in monthly retail sales growth from 1.8%m/m in February to 0.2%m/m in June suggests that these headwinds may be starting to turn the screws on retail spending. That said, that slowdown is also likely to be reflecting the broader rotation back to services categories that are largely not captured in the retail data.