Retail Trade – December 2013
- Retail trade rose by 0.5% in December to be 5.7% higher over the year.
- Retail prices are picking up, rising by 1.1% over QIV. It looks like prior discounting pressures faced by retailers are now easing and their pricing power is rising.
- Retail volumes rose by 0.9% over the quarter and should contribute around 0.15ppt to QIV GDP growth.
- Higher retail spending outcomes are a response to low interest rates and rising asset prices. Household spending growth should start to pick up towards more average levels which is positive for GDP growth.
The rise in retail trade over December was right on market expectations of a 0.5% rise (CBA (f): 0.8%)). We had been anticipating a slightly stronger result based on anecdotal evidence of a decent period of Christmas spending. Nevertheless, the outcome is still robust and is well above levels recorded over 2012‑mid 2013. The pick up in retail trade momentum over the past five months is another indicator of the transmission mechanism of low interest rates.
There was a very large rise in food retailing (+2.5% over December) because of a strong lift in supermarket and groceries retailing (+2.8%), driving the headline result. This is consistent with the spike in fruit and vegetable prices seen in the QIV CPI. Across the other categories, there was a rise in department store sales (0.3%) and cafés, restaurants’ and takeaway (+0.5%) which were offset by falls in clothing and soft goods retailing (‑2.1%), household goods retailing (‑0.2%) and other retailing* (‑3.1%). Over the past few months, higher retail outcomes have been focussed in the cafés, restaurant and takeaway category.
For the States, spending in NSW and Vic has picked up noticeably suggesting that the wealth effects of rising house prices in Sydney and Melbourne are translating into higher consumer spending. Dwelling price growth in Sydney and Melbourne has been the highest amongst the capital cities over the past year. Retail trade growth has slowed in WA, though it should be noted that it is slowing from an elevated level. Annual retail trade growth in QLD and SA is below the national average, while spending in TAS has ramped up from a period of depressed sales growth.
The December retail release also contains the quarterly inflation‑adjusted volume data. Retail volumes rose by an around‑trend 0.9% over the quarter (3.4%pa). Retail inflation lifted by 1.1% in QIV, the highest rise in prices since March 2011. The highest price rises occurred in food (+1.7% over QIV) and household goods (+0.7%). The pick up in retail prices is consistent with the outcomes of the QIV CPI data released recently. It is a sign that prior discounting pressures faced by retailers are now easing and their pricing power is rising. This is one of the outcomes of a falling Aussie dollar. On our forecasts, retail volumes will contribute 0.15ppt to QIV GDP growth.
The rise in retail spending bodes well for consumer spending outcomes (retail is around 31% of consumer spending). A lift in consumer spending back to average growth rates is needed as one of the offsets to lower levels of mining investment.
*Other retailing includes newspaper and book retailing, recreational goods retailing and pharmaceutical, and cosmetic and toiletry goods retailing.
