Australian retail sales volumes have declined for two quarters running for the first time in more than a decade as headwinds on household spending intensified. March quarter volumes were down by 0.6% after falling by 0.3% in Q4 2022. Weakening demand is seeing retail price inflation ease.
Retail Sales — March | By the numbers
- Retail sales lifted 0.4% in March - in line with the preliminary estimate - to $35.3bn. This was after a 0.2% rise in February.
- 12-month retail sales slowed to a 5.4% pace from 6.4%.
- Quarterly retail sales volumes declined by 0.6% in Q1 following Q4's 0.3% fall.
- Year-ended volume growth decelerated from 1.8% to 0.3%.
- The retail price deflator printed at 0.6%, its slowest quarterly rise since Q3 2021.
Retail Sales — March | The details
As reported last week, retail sales lifted by 0.4% for the month in March. The value of retail spending stalled in the first quarter (0%) on offsetting movements in volumes and prices, slowing from growth of 0.9% in the final quarter of 2022. Underlying sales volumes fell by 0.6% (0.3%Y/Y), with demand weakening under the weight of cost-of-living pressures and rising interest rates. Volumes have now fallen in successive quarters (-0.3% in Q4), the last time this occured was in 2010/2011. Retail prices continued to rise - albeit at their slowest quarterly rate since Q3 2021 - up 0.6% in Q1 (5.9%Y/Y). That was a significant slowing from Q4's 1.2% rise, as discounting led to price falls in clothing and footwear (-1.1%) and at department stores (-1.2%).
The decline in March quarter sales volumes was driven by a 3.7% fall in household goods; volumes in the category have fallen for 5 consecutive quarters to be 10.3% down from their pandemic peak. That unwind has come alongside the post-pandemic rotation to services spending and a downturn in housing prices. Volume growth continued at cafes and restaurants (1% in Q1), consistent with signs of resilience in services demand. In the past two quarters, cafes and restaurants have risen by 1.2% against a backdrop of weakening demand, with both discretionary-related (non-food) (-2.5%) and total retail volumes (-0.9%) contracting over that period.
Retail price inflation peaked at the back end of 2022 at above 7%Y/Y. Global disinflationary forces are starting to flow through to goods prices in Australia, and with demand having weakened materially, retail price inflation should fall rapidly in 2023; though if upward pressures re-emerge in food prices that would hamper the rate of decline.
Retail Sales — March | Insights
Retail demand weakened further in the first quarter of 2023 after declining into the end of 2022. Cost-of-living pressures and rising interest rates are clearly biting. Demand is even weaker than implied by the declines in headline volumes in Q4 (-0.3%) and Q1 (-0.6%), due to rapid post-pandemic population growth. On a per capita basis, retail volumes have fallen for three quarters running, with a 1.1% fall in Q1 following earlier declines of 0.2% (Q3) and 0.8% (Q4). Retail price pressures are easing after peaking at the end of 2022, with weaker demand a key factor.
