Australian retail sales unwound sharply in December following Black Friday sales. Sales volumes fell for the first time since the Delta lockdowns in 2021, though household consumption looks to have continued to be driven by the post-Covid rebound in services over the final quarter of the year. There was a welcome slowing in retail prices in the quarter due to Black Friday discounting and food prices holding flat.
Retail Sales — December | By the numbers
- National retail sales saw a 3.9% pullback in December to $34.5bn following a Black Friday-boosted 1.7% rise in November. Retail spending lifted by 0.9% in the December quarter.
- 12-month retail sales were little changed at 7.5% from 7.7% in November.
- Quarterly retail sales volumes declined by 0.2% in Q4, a smaller than expected fall (-0.5%), but down from the prior quarter (0.3%) and its weakest outturn since the Delta lockdowns in Q3 2021.
- Year-ended volume growth decelerated sharply from 9.9% to 1.8%, as the reopening-driven surge from Q4 2021 (7.8%) fell out of the calculation.
- The retail price deflator saw its slowest quarterly rise in a year (1.1%) reflecting the effects of Black Friday discounting and falls in fruit and vegetable prices.
Retail Sales — December | The details
As reported last week, Australian retail sales fell by 3.9% in December unwinding from a strong rise in November (1.7%) as households took advantage of Black Friday discounting in the run-up to Christmas. Over the final quarter of the year, retail spending increased by 0.9%, but prices increased by more (1.1%) resulting in a modest 0.2% fall in underlying volumes. That was the weakest outcome since the Delta wave lockdowns in Sydney and Melbourne drove a 3.7% fall in national volumes in Q3 2021. Growth in retail volumes slowed sharply from 1.6% in the first half of 2022 to 0.1% in the second half, likely reflecting consumption moving back to services as the effects of the pandemic dissipated.
Discounting for Black Friday sales and falls in fruit and vegetable prices following the easing of supply-related impacts from earlier flooding saw retail price pressures cool during the December quarter. The retail price deflator slowed to a 1.1% rise in the quarter, but the annual rate remained above 7%.
Discretionary categories drove the decline in retail volumes (ex-food volumes fell by 1.6%q/q), but this was largely offset by the first rise in food volumes in 5 quarters (2.1%q/q). Food prices were flat overall in the quarter after accelerating in recent quarters. The fact purchasing power at the supermarket stopped deteriorating looks to have been reflected in higher volumes.
The declines in volumes in the discretionary categories in Q4 were mostly in the order of 2-3% (see summary table above). The one exception to this was cafes and restaurants, which held broadly flat (0.3%) and was likely still being supported by the post-Covid rotation to services spending, particularly with holiday travel very strong over the summer holiday period.
Across the states, momentum in retail demand has either flattened out or is now softening from the run-up seen over the Covid period. In the most recent quarter, Queensland saw the largest fall in volumes (-0.6%) followed by declines of 0.3% in Victoria and Western Australia. Volumes in New South Wales held up against the national result seeing a modest rise (0.2%).
Retail Sales — December | Insights
Retail demand slowed sharply over the second half of the year, posting a small decline in Q4 (-0.2%). This partly reflects the rotation in consumption to services as the effects of the pandemic faded over the course of the year. Still, cost-of-living pressures are also likely to have factored in weaker retail demand. Price pressures in the retail sector are unlikely to be anywhere near as severe in 2023 due to the combination of weaker demand and the easing of constraints in global supply chains.