After a splurge the previous month, Australian retail sales took a dramatic downturn in December, with shoppers exercising caution amid the ongoing COVID-19 pandemic. According to data released by the Australian Bureau of Statistics (ABS), retail sales experienced a 2.7% decrease on a seasonally adjusted basis, following a 1.6% rise in November due to Black Friday sales. Analysts had predicted a smaller drop of at least 1% for December.
The latest figures reveal that sales totalled A$35.2 billion ($23.27 billion), marking a meagre 0.8% increase from the previous year. This is the slowest pace of growth since the August 2021 COVID-19 lockdowns, coinciding with Australia’s rapid population growth. Ben Dorber, ABS head of retail statistics, noted that despite the festive season, underlying retail spending remains subdued.
The pressure on household budgets has heightened expectations that the Reserve Bank of Australia will not raise interest rates next week, with a 70% conviction for a rate cut in August. Interest rates have already reached a 12-year high of 4.35% since May 2022, leading consumers to cut back on discretionary spending.
The second half of the year may bring some relief, as reworked tax cuts are expected to take place. However, the forthcoming four-quarter inflation report will be closely monitored, as economists anticipate that consumer inflation has eased to a two-year low of 4.3%.
The decline in December retail sales was driven by a slump in discretionary goods, with spending on household items dropping by 8.5%, erasing the previous month’s 6.5% gain. Consumers also reduced spending across various categories, except for food, which saw a marginal 0.1% increase.
