Retail sales added 0.2% in February from January, when they gained 0.3%. — AP
SYDNEY: Australian retail sales have risen modestly for a second straight month in February as a long-awaited cut in interest rates combined with slower inflation to boost consumer sentiment and spending.
However, the recovery in consumer spending is still tepid, suggesting consumers remain cautious and would not be a bar to more policy easing.
Data out from the Australian Bureau of Statistics (ABS) yesterday showed retail sales added 0.2% in February from January, when they gained 0.3%. The outcome was below market forecasts of a 0.3% increase.
Sales were up 3.6% year-on-year at A$37.1bil or about US$23.14bil, with the ABS noting the February gain was largely due to food and eating out, with demand for household goods falling in the wake of year-end discounting.
“Some overhang is to be expected after a very strong quarter of sales in the fourth quarter. Discounting activity at the end of 2024 pulled forward some spending, and conditions in this component may be subdued for a little longer yet,” said Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia.
“The fundamentals for consumer spending are still sound, with real income growth improving and the labour market in a tight position,” he added.
The consumer recovery, aided by slowing inflation and the first rate cut in more than four years in February, has helped the economy rebound after a long period of meagre growth. The outlook is also brighter given the government is promising new income tax relief in 2026 and 2027 along with more cost-of-living support for households in a bid to win a general election on May 3.
The Reserve Bank of Australia (RBA) is widely expected to hold the cash rate at 4.1%, having warned the prospects of further policy easing are not guaranteed after its February rate cut.
Swaps imply a scant chance for a move, but some in the market are betting a quarterly inflation report due at the end of the month could open the door to another easing in May, which is about 77% priced in.
For all of this year, a total easing of 70 basis points is expected, equivalent to almost three rate cuts.
Meanwhile, Australia’s central bank yesterday left its cash rate steady as widely expected, saying it was still cautious about the outlook, although the risk is US tariffs could be a drag on global growth.
The RBA held interest rates steady at 4.1%, having just cut them by a quarter point in February for the first time in over four years.
“The board noted that monetary policy is well placed to respond to international developments if they were to have material implications for Australian activity and inflation,” the board said in a statement.
The statement also dropped an explicit reference to being cautious about cutting rates again, in a slightly dovish sign for policy. — Reuters
