Latest ABS July retail data beats consensus with 0.5pc rise, causing headaches for the RBA

The Australian Bureau of Statistics (ABS) has released the latest retail trade data for the month of July, revealing a 0.5 per cent increase month-on-month – surpassing consensus estimates of a 0.3 per cent rise.

The rise of 0.5 per cent follows the June reading, which showed a decrease of 0.8 per cent, effectively reversing the gains made in May, which stood at 0.8 per cent.

The July data still reflects a 2.1 per cent climb year-on-year (YoY) over July 2022, following the upward trend also noted in June, where despite a 0.8 per cent dip, it remained 2.3 per cent over June 2022 YoY.

0.5pc increase beats expectations

This 0.5 per cent increase exceeds expectations, with consensus anticipating a rise of 0.3 per cent.

This means that retail spending in Australia is now higher than expected.

One element to consider is the June 30 sales, but Knight Financial Advisors Director Jason Featherby believes this would have been reflected in the June data.

“What the RBA is trying to do is soften demand, but retail spending being higher than expected will give them some thought,” he said.

“The economy is more resilient than we hoped and people have more disposable income than we thought. The problem with that is that more demand means higher prices which equals sticker and higher inflation.”

Overall, Mr Featherby points to sticky low unemployment as facilitating a higher-than-expected resilient Australian consumer, raising the chances of further RBA hikes.

For his part, he expects one more RBA hike before a final pause. Citigroup analysts expect two more hikes for 50bps starting in November.

0.5pc still a fairly subdued growth rate

City Index Senior Market Analyst Matt Simpson maintains his view that the RBA has likely finished raising rates. He also noted the upcoming release of inflation data on Wednesday, which carries upside risk if the figures are higher than expected.

“It seems consumers aren’t quite ready to roll over,” he said, adding that the 0.5 per cent increase isn’t exactly a mammoth increase over expectations of 0.3 per cent.

“I don’t think there’s any immediate cause for concern regarding another RBA hike, but that could change if inflation doesn’t behave in Wednesday’s report.”

While an increase of 0.5 per cent is on the whole a marginal increase, the data could pose a challenge for those who expected the RBA to have paused its rate hike cycle for good.

FIFA Women’s World Cup impact

Oxford Economics’ Head of Macroeconomic Forecasting Sean Langcake anticipates patchy retail sales growth for Q4 of CY2023 and into 2024.

Despite unexpected strength in retail, the case remains that higher interest rates are curbing demand.

“High interest rates and other cost-of-living pressures are curbing demand and weighing heavily on discretionary spending,” he said.

“The end of the interest rate hiking cycle may boost consumer confidence, but it will do little to alleviate household budget pressures.

“Supermarket sales remain steady, while strength in other food retailing in the month was attributed to the FIFA Women’s World Cup.”

The RBA’s interest rate decision in September will be the new RBA Governor Michele Bullock’s first market-impacting decision.

When Ms Bullock’s appointment was first confirmed, the Australian dollar failed to shift, indicating at the time that the forex market was confident Ms Bullock would not shake things up.

Former RBA Governor Philip Lowe expressed his confidence in Ms Bullock in one of his final remarks on the job.