Buy, buy, buy. Photo: Jack Atley
Shoppers opened their wallets in November as retail sales posted their largest rise since the end of the Federal Government’s cash stimulus payments in March, building the case for another interest rate rise as early as next month.
Retail sales jumped 1.4 per cent in November, more than four times higher than the 0.3 per cent rise experts had tipped. The result followed a revised 0.4 per cent gain in October, the Australian Bureau of Statistics said.
The dollar jumped across the board, hitting a new two-year high against the euro and a 15-month peak on the yen, while interest rate futures fell as investors bet the Reserve Bank's board would raise rates for a fourth consecutive time when it next meets early February.
Rate rise looms
“An absolutely smashing result,” said ANZ economist Julie Toth. “Way beyond market expectations. Beyond our expectations.”
Ms Toth said it indicated domestic household consumption is ticking along stronger than previously thought.
That’s bad news for borrowers, however, as it helps bolster the case for more rate rises by the Reserve Bank.
“We know we’re in the midst of a tightening cycle already and this certainly does nothing for the RBA to pause or to review its current tightening policy.”
The RBA has already raised its key rate three times in as many months to stand at 3.75 per cent, far above most other developed nations, while major commercial banks have lifted mortgage rates even more.
The market probability of a hike to 4 per cent in February rose to 62 per cent, from 50 per cent before the sales data, according to Reuters. There is now 128 basis points of tightening priced in for the next 12 months.
"A very strong number and pressure to raise rates is building," said HiFX senior consultant Derek Mumford. "In an environment of rising commodity prices and improving employment conditions it is hard to argue for the RBA to keep rates at, still, historically low levels.
"Another good set of employment numbers next Thursday will now seal the decision to raise official rates on February 2."
RBA's vindication
TD Securities economics strategists Millan Mulraine said the retail data, coming in after yesterday's strong December car sales - which showed a 16 per cent year-on-year rise in the number of vehicles sold - justified the RBA's previous rate hikes, which are aimed as ensuring the economy doesn't expand too quickly only to lapse into a recession.
"On the whole, these reports provide further evidence to show that strong consumer spending, powered in large part by the still accommodating monetary and fiscal policies, continues to be the key engine of growth for the Australian economy," Mr Mulraine said.
"It also vindicates the recent RBA interest rate decision. Moreover, with economic conditions continuing to improve, we expect the RBA to remain on the rate hike path with a further 25 basis point increase in the cash rate by the end of the first quarter."
Healthy Christmas sales
November's strong sales presage what's expected to be healthy Christmas sales season. The Australian Retailers Association said today 67 per cent of the retailers it surveyed reported trading to be the same or better compared to 2008-09.
Consumers purchased goods worth $20.08 billion in November, from $19.802 billion in the previous month. They spent 2.5 per cent more on clothing and footwear and 1.7 per cent more on household goods, seasonally adjusted.
Food retail jumped 1.6 per cent, while pre-Christmas shoppers flocked to department stores pushing up purchases from those outlets by 1.1 per cent, the ABS said.
By state, South Australian retailers experienced the biggest increase in the month, 3.1 per cent, seasonally adjusted, the ABS said. Victoria’s sales rose 2.1 per cent, while in New South Wales they rose 1.3 per cent.
Western Australia retail sales increased 0.7 per cent, in Queensland they rose 0.6 per cent. ACT rose 2.7 per cent, Tasmania was unchanged in November.
czappone@fairfax.com.au
BusinessDay
