Retail spending in Australia grew less than expected in August as consumers continued to tighten their belts amid elevated living expenses and historically high interest rates.
Data from the Australian Bureau of Statistics (ABS) on Thursday showed nominal retail sales rose 0.2% in August from July, below market expectations of a 0.3% gain.
Although boosted by spendings related to the 2023 FIFA Women's World Cup, sales of $35.4 billion during the month were up just 1.5% from a year earlier, the lowest gain in percentage terms since August 2021.
Spending on food recorded a fall of 0.3%, while household goods inched 0.4% lower for the third straight month.
"Retail Trade continues to grow very modestly, with a 0.2% seasonally adjusted monthly increase recorded over August. This equates to an increase in spending of 1.5% over the year, and is well below inflation rates," CreditorWatch chief economist, Anneke Thompson said.
"The one bright spot for retail trade was clothng, footwear and personal accessories, which were given an unexpected boost over the month by the FIFA Women’s World Cup and associated merchandise purchasing. Spending in this category grew by 1.5% over the month.
"Food retailing continues to fall - down by 0.3% over the month. This is likely due to falling prices in some major food categories, such as fruit and vegetables. Strong population growth and a weakening economy usually results in food retailing being one of the strongest categories, so this is quite an unusual dynamic. It is also likely reflective of consumers trading down to cheaper alternatives of commonly purchased grocery items.
"The one consistent area of increased spending is café, restaurant and takeaway food services, which grew by 0.7% over the month. It seems Australians are still keen to eat out and not give up their takeaway coffees. However, despite strong demand in the sector, increased spending could also be attributed to many businesses being forced to increase prices. Moderating fresh food prices will be welcome relief for café and restaurant operators, however, energy, transport and insurance bills are all still rising considerably, and continue to impact the viability of many of these businesses.
Rates likely on hold
The sluggish consumer spending will likely see interest rates maintained at 4.1% in October, the fourth consecutive month that the Reserve Bank of Australia has had to keep rates steady.
The central bank will meet under new Governor Michele Bullock next week.
Pain from high costs
Australia has witnessed a series of interest rate increases, totalling 400 basis points since May 2022.
These rate hikes have resulted in substantial increases in the monthly mortgage payments for the average citizen and have put pressure on consumer spending, which had initially remained robust, partially due to savings accumulated during the COVID-19 pandemic.
"Considering how high inflation and strong population growth has added to retail turnover in the past year, the historically low trend growth highlights just how much consumers have pulled back in response to cost-of-living pressures," ABS head of retail statistics Ben Dorber said in a note.
The effects of the tightening measures have not been uniform across households though.
Data from the Commonwealth Bank of Australia (ASX:CBA) show younger Australians who are either renting or have mortgages are reducing their expenditures, while older Australians who are benefiting from elevated savings rates continue to maintain their levels of spending.