Declining Australian Retail Sales Reflect Consumers' Response to Rising Costs and Interest Rates

Retail sales volumes in Australia have experienced a consecutive decline for the third quarter, indicating that consumers are cutting back on spending due to increased living costs and a significant rise in interest rates.

The Reserve Bank of Australia has implemented a record 400 basis points increase to the official cash rate since May last year, aiming to counter the sharpest inflation surge in over three decades. As a consequence, retail sales volumes fell by 0.5% in the second quarter, following a 0.8% decrease in the first quarter and a 0.4% drop in the fourth quarter of the previous year, according to the Australian Bureau of Statistics.

This marks the first occurrence of three consecutive quarterly declines in retail sales volumes since 2008. The decrease in demand across various sectors supports the recent decision of the RBA to prolong the pause in rate hikes for another month. Many economists now predict that the RBA has completed its rate increases and expect cuts to come later in 2024.

Compared to the second quarter of the previous year, retail sales volumes also contracted by 1.4%, showcasing the first decline in sales volumes relative to the previous year since 1991, as reported by the ABS.

Conversely, as inflation continues to surge throughout the economy, retail prices rose by 0.9% in the quarter, up from 0.7% in the first quarter.

Sales volumes for cafes, restaurants, and takeaway-food services experienced their first decline since the Covid-19 Delta lockdowns in September 2021. Household goods and department stores also saw a significant decrease in retail sales volumes.

"The widespread fall in sales volumes reflects what retailers have been telling us about consumers focusing on essentials, buying less, or switching to cheaper brands," stated the ABS.