By Stella Qiu
Sydney (Reuters) - Australian retail sales bounced back in August, surpassing expectations after a slow July due to warm weather and increased consumer spending possibly fueled by recent tax cuts.
Data from the Australian Bureau of Statistics (ABS) revealed a 0.7% increase in retail sales in August compared to a 0.1% rise in July, exceeding analysts' forecasts of a 0.4% rise.
The strong performance led to a 0.25% rise in the Australian dollar to $0.6930, just below its 1-1/2 year peak of $0.6943.
Despite the positive growth, sales were up 3.1% from a year earlier at A$36.5 billion ($25.26 billion), a relatively modest result given Australia's rapid population growth.
"This year's record warm August led to increased spending on spring items such as summer clothing, liquor, outdoor dining, hardware, gardening items, camping goods, and outdoor equipment," said Robert Ewing, ABS head of business statistics.
The Reserve Bank of Australia (RBA) has raised interest rates by 425 basis points to 4.35% since May 2022 to curb inflation. However, the RBA remains cautious about the potential for higher consumption as real incomes improve due to government tax cuts implemented in July.
Although early signs suggest that tax cuts are boosting consumer spending, card data from major banks indicates that consumers are not yet splurging the extra income. Some are using the tax cuts to pay down mortgages instead.
Market swaps indicate a 60% likelihood of the RBA lowering the cash rate in December, despite the central bank ruling out a rate cut by year-end. Additionally, the property market, which had been a concern for financial conditions, is also showing signs of slowing down with a modest 0.4% gain in September.
Analysis:
The rebound in Australian retail sales in August indicates a potential increase in consumer confidence and spending, driven partly by warm weather and recent tax cuts. This growth could have implications for the economy, particularly in relation to inflation and interest rates. The RBA's decisions on monetary policy, including the possibility of a rate cut, will be closely watched in the coming months.
