Australian retail sales continued to advance in September, though growth in underlying demand in the quarter saw its weakest outturn in a year. Retail prices rose sharply again, driven by food and discretionary categories. Household demand is rotating back to services from goods as the pandemic dissipates and is still broadly resilient to weak sentiment and cost-of-living pressures.
Retail Sales — September | By the numbers
- National retail sales increased 0.6%m/m in September to $35.1bn, in line with the preliminary estimate that surprised to the upside of market expectations (0.4%) earlier in the week.
- The pace of 12-month retail sales eased from 19.2% to 17.9%, with the base period coinciding with the back end of the Delta wave lockdowns in 2021.
- Quarterly retail sales volumes slowed to a 0.2% rise in Q3, softer than expected (0.4%) and well down from Q2 (1.0%).
- Year-ended volume growth accelerated from 5.5% to 10% as the decline in Q3 last year (-3.9%) during the Delta lockdowns fell out of the calculation.
- The retail price deflator lifted by 2% in the quarter to be up by 6.9% through the year. Prices advanced by 2.1% in the prior quarter.
Retail Sales — September | The details
Australian retail sales lifted by 0.6% over the month in September and by 2.3% for the quarter in total. Rising prices were a significant driver, contributing 2ppts to the quarterly increase in turnover. Relative to their pre-Covid levels from Q4 2019, nominal sales are 26.3% higher compared to a 12% increase in volumes. That 'wedge' highlights the extent of retail inflation the Covid period has caused. But, despite that, there hasn't yet been outright demand destruction, with retail volumes continuing to rise.
In Q3, retail volume growth was weak rising by just 0.2%, slowing from gains of 1% in the past two quarters and a 7.5% reopening boost in the December quarter last year. In part, that slowdown has been driven by the rotation in spending from goods to services as the pandemic has dissipated. Categories supported by staying at home, notably household goods and food, are pulling down on retail demand, while categories boosted by people going out more, such as dining out and clothing and footwear, have been key drivers. In Q3, that discretionary-related demand did show signs of softening. That could be reflecting the maturing of pent-up demand, but cost-of-living pressures could also have been a factor.
Retail volumes are well above pre-pandemic levels in all states. The rise in volumes over that period has been close to the national aggregate (12%) in New South Wales (11.5%) and Victoria (10.7%). Demand has been most elevated in Western Australia (16%) and Queensland (14.3%) but has been sub-par in South Australia (8.4%) and Tasmania (8%).
The breakdown of the quarterly changes in retail prices over the past year are shown in the next chart. Unsurprisingly, prices in the food category have shown the most sustained rise, consistent with the CPI data. Higher input costs associated with transportation, production and from supply-related issues (such as the floods in New South Wales and Queensland) have been key factors. Household goods prices have risen due to strong demand amid constraints in global supply chains. The decline in clothing and footwear prices in Q3 was due to seasonal discounting. Meanwhile, prices at cafes and restaurants have escalated on the back of rising food prices, while labour costs are also likely to have contributed. But despite these rising prices, demand for dining out has been very strong.
Retail Sales — September | Insights
A soft result for retail volumes which slowed sharply in Q3. Demand is moderating as the pandemic continues to dissipate, leading to a reduction in pent-up demand and more spending rotating to services, with offshore travel (not captured in the retail data) a major beneficiary. Cost-of-living pressures are likely to also be taking some of the heat out of retail demand. Spending on services drove household consumption growth in Q2 and that is likely to have been the case again in Q3.