Written by Stella Chiu and Wayne Cole
SYDNEY (Reuters) – Australian retail sales saw their biggest increase in 10 months in November as Black Friday discounts attracted cost-conscious shoppers, but the rise fell short of expectations that the increase was not an obstacle to interest rate cuts.
Analysts suspect the additional demand has just been introduced from Christmas, with markets still betting that the RBA may ease policy in February.
Data from the Australian Bureau of Statistics (ABS) showed on Thursday that retail sales rose 0.8% on a seasonally adjusted basis, after rising 0.5% in October. Expectations were for a 1.0% rise in November.
The Australian dollar fell 0.2 percent to $0.6204 due to the data.
Sales rose 3.0% year-on-year to A$37.1 billion (US$23 billion), with ABS noting that promotional activity now extends across the entire month of November, not just the Black Friday weekend.
Sales in supermarkets jumped by 1.8% during the month, while spending in cafes and restaurants rose by 1.5%.
“The continued rise in popularity of Black Friday sales in Australia means that seasonal strength has not been effectively captured by the seasonal adjustment of the ABS,” said Ben Oddi, chief economist at Oxford Economics Australia.
“This makes it very difficult to get a read on the underlying strength of consumption from this data, as the strong rise is likely to be offset by contraction in sales in December.”
In fact, December sales declined from the previous year after the jump seen in November.
Sales expectations have been helped somewhat by slowing inflation and significant cuts in income taxes. However, the rise in consumer spending so far has been disappointing, and was the reason the central bank unexpectedly shifted to easy monetary policy last month.
The Reserve Bank of Australia has kept interest rates steady for more than a year now, considering the cash rate of 4.35%, up from a record low of 0.1% during the pandemic, to be restrained enough to bring inflation to its target range while maintaining employment gains.
A decline in core inflation on Wednesday led markets to increase bets on an interest rate cut in February. Swaps indicate a 60% probability of such a move, while futures indicate a 78% probability.
The Commonwealth Bank of Australia (OTC:) now expects the average measure of inflation to come in at a quarterly rate of 0.5% in the fourth quarter, while Nomura cut its forecast to 0.4%, well below the Reserve Bank of Australia's own estimate of 0.7. %.
“We had previously assigned a probability of around 60% for the RBA to ease by 25 basis points in February and believe this is now likely to rise to at least 70%,” said Andrew Ticehurst, chief economist at Nomura Bank.
“A rise in the unemployment rate in December – our base case – would boost our confidence further.”
The Reserve Bank of Australia will have its December retail sales report, as well as updates on the surprisingly tight labor market, before it decides its next move on February 18.
