Australian retail sales for March were much weaker than expected falling by 0.4% in the month against expectations for a modest rise (0.2%). The weak result was driven by a pullback in discretionary spending (-1.3%) following increases in January (1.8%) and February (0.6%). RBA rate cuts in 2024 were priced out following last week's Q1 inflation data; however, markets are reviewing that assessment following today's report.
March sales contracted by 0.4% as weakness in discretionary spending (-1.3%) more than offset a sharp rise in food sales (0.9%), its fastest increase since December 2022. Discretionary spending drove retail sales over the summer - with the ABS attributing this to strong support for major events including the Taylor Swift Eras Tour, the Australian Open and the Big Bash League cricket - leading to an inevitable unwind as Autumn arrived. Overall, quarterly sales were soft rising by just 0.2%, likely declining in inflation-adjusted terms (retail volumes are due to be published next week).
There were broad-based declines across the sub-categories of discretionary spending in March. Clothing and footwear (-4.3%) and department stores (-1.6%) saw the sharpest declines, largely reversing their increases in February. Spending on household goods (-1.4%) and at cafes and restaurants (-0.2%) also declined. Food sales lifted sharply (0.9%), but that followed declines in January and February.
Overall, today's report came in much weaker than expected and likely puts the prospect of the RBA cutting rates later this year back on the table. Momentum in household spending - particularly in discretionary categories - is weak amid cost-of-living pressures and higher interest rates. Although the quarterly inflation rate ticked up in Q1, this was predominantly driven by areas such as rents, insurance and education costs, rather than reflecting strong demand.