18 Feb 2014

Solid growth in retail sales

9:26 am on 18 February 2014

Retail sales growth in the December quarter was below market expectations but still solid at 1.2 percent.

Economists had expected a 1.7 percent increase on average, with one forecasting as much as 2.5 percent.

Fuel sales climbed 5.7 percent in the quarter, while spending on clothing and footwear jumped 9.9 percent. However, spending in supermarkets fell 0.5 percent, their second quarter of declining sales.

Deutsche Bank economist Darren Gibbs said although the outcome was below expectations, it still represented annualised growth of nearly 5 percent.

"The key point, I think, is the nominal spending was growing at the same pace as real spending, so at 1.2 percent," Mr Gibbs said.

"In other words, there's still very little inflation coming through in the retail sector."

Of likely interest to the Reserve Bank was that nominal spending remained below the pace of growth in labour incomes, so there was no sign credit was being used to fund consumer purchases, he said.

"Households are taking credit to buy houses but we're not seeing money drawn out to fund consumption, which I think is a good thing."

Mr Gibbs said he expected solid growth through to the middle of the year but believed it would ease in the second half, mostly due to expected Reserve Bank interest rate hikes.