The Australian Bureau of Statistics (ABS) has released retail sales figures for December 2022, reporting a 3.9 per cent month-on-month decline — far exceeding market expectations of a 0.2 per cent fall.
The surprise dip was spurred by subdued spending across discretionary goods categories — led by a drop in retail sales across department stores (14.3 per cent); clothing, footwear, and personal accessories (13.1 per cent); and household goods (7.8 per cent).
On a state-by-state basis, retail sales across Victoria and West Australia took the biggest hit (4.7 per cent); followed by Queensland (3.8 per cent); Tasmania (3.7 per cent); the ACT (3.5 per cent); NSW (3.4 per cent); South Australia (2.5 per cent); and the Northern Territory (2.4 per cent).
According to ANZ Research economists Madeline Dunk and Adelaide Timbrell, the retail sales figures reflect the impact of monetary policy tightening from the Reserve Bank of Australia (RBA) on consumption.
“…The extent of the fall suggests households have started to cut back on discretionary spending,” the economists noted.
And this trend is expected to continue over the course of the year.
“We expect consumption growth to slow through 2023 as a result of higher interest rates and the recent decline in real wages due to very strong inflation,” they added.
Subdued retail sales activity has coincided with a decline in demand for credit.
According to the RBA’s latest Financial Aggregates data, private sector credit grew 0.3 per cent in December, falling short of a projected 0.5 per cent month-on-month increase.
The December result — the weakest since April 2021 — was driven by a 0.5 per cent contraction in demand for personal credit, offset by 0.3 per cent housing and business credit growth.
Ms Timbrell attributed credit weakness to a “decline in risk appetite” as a result of expected weakness in economic growth and higher interest rates.
As with retail sales, ANZ Research is expecting credit growth to continue slowing in 2023, halving from 9 per cent year-on-year as of 4Q22 to 4.3 per cent as of 4Q23.
These latest market indicators support growing expectations of a slowdown in the RBA’s monetary policy tightening cycle, with the central bank expected to reduce the size of future hikes to 25 basis points as the cash rate approaches its peak.
