Retail Sales in Australia Flat in July

By Stella Qiu
SYDNEY (Reuters) – Australian retail sales were flat in July after two months of positive results, indicating large-scale tax cuts have yet to stimulate spending. This has led to increased expectations for a future interest rate cut.

Data from the Australian Bureau of Statistics (ABS) released on Friday showed retail sales unchanged in July when compared to the previous month, slowing from a 0.5% rise in June. Analysts had anticipated a 0.3% increase in July.

Sales rose by 2.3% year-on-year, a decrease from June’s 2.9% as consumers faced inflation and high mortgage rates. This increase is notably weak compared to Australia’s population growth of approximately 2.6%.

Spending on clothing and at department stores declined by 0.6% and 0.5% month-on-month, respectively, and cafes, restaurants, and takeaway food experienced a 0.2% decrease as consumers became more frugal. The only category with an increase was food retailing, which rose by 0.2%, with Coles and Woolworths reporting decent profits.

Economist Abhijit Surya from Capital Economics commented, “Overall, it’s clear there was little momentum behind consumer spending at the start of the quarter. Despite early data, it reinforces our belief that households aren’t rushing to spend their tax cuts.”

Surya noted that weak household consumption raises the risk of a rate cut by the Reserve Bank of Australia (RBA) before Q2 2025.

This consumption weakness is partly due to high interest rates, with the RBA raising rates by 425 basis points to 4.35% since May 2022 to combat inflation, which was 3.5% in July—above the target range of 2-3%.

Policymakers have dismissed a near-term rate cut, concerned that consumption may rebound more than anticipated as rising real incomes, boosted by tax cuts, provide average wage earners with an extra A$1,500 annually.

Housing prices have also reached record highs, driven by a surge of migrants stretching supply and increasing homeowners’ wealth.

Data from banks on card transactions hints at a sluggish July, with Westpac noting that consumers are largely retaining the extra cash from tax cuts instead of spending it, indicating a likely soft third quarter.

Markets have reduced expectations for a rate cut this year after July’s inflation slightly exceeded anticipations. The probability of a rate cut in December is now at around 80%.