Australian retail sales accelerated past estimates rising by 0.6% in May, their strongest outturn since the start of the year as end-of-financial year sales saw people returning to the shops. While the momentum in retail sales is weak averaging just a 0.1% gain for the 3 months to May, today's report indicates that households faced with cost-of-living pressures and higher interest rates are still responsive to discounting.
The outcome for May retail sales (0.6%) surprised the market to the upside, doubling the expected increase and coming in above the top end of the range of forecasts (-0.4% to 0.5%). The ABS cited in its release the effect of end-of-financial-year promotions, with budget-conscious households capitalising on discounted prices. Annual growth in retail sales lifted from 1.2% to 1.7% but remains weak relative to the pace of population growth and inflationary effects.
Broad-based growth was seen across the categories in May; food sales advanced by 0.7%, reversing a fall in April (-0.5%), with liquor sales a key driver behind the month-to-month swing. Discretionary spending was up by 0.4%, moderating slightly from the previous month (0.6%). Within this, the strongest gains came in household goods (1.1%) - its best outturn since January - and clothing and footwear (1.6%), rebounding after falling sharply over March-April. By contrast, the categories of disretionary spending that weakened were department stores (-0.9%) and cafes and restuarants (-0.2%), the latter unwinding from the boost generated by the AFL Gather Round and LIV Golf held in Adelaide during April.
Overall, while this was a solid result for May, retail sales remain constrained by households cutting back amid cost-of-living and interest rate pressures. The effect of price discounting clearly resonated with consumers in that context. While households are now in line for tax relief via the stage 3 tax cuts in addition to government energy rebates, I am minded to think this is more likely to alleivate the pressures being faced in the first instance rather than providing an outright boost to demand.
