12 Jun 2014

Rates have to rise - economist

7:57 am on 12 June 2014

Consumers may not be getting carried away on retail spending but the strong economic outlook means interest rates will have to rise further in the coming year, an analyst says.

Reserve Bank Governor Graeme Wheeler is on Thursday morning expected to raise his official cash rate for the third time this year to 3.25 percent.

Figures on Wednesday showed retail spending using electronic cards rose 1.3 percent in May, with all three categories the government statistician measures increasing for the first time since last October.

The seasonally adjusted figures show core retail spending, which excludes spending on cars and fuel, was up 1 percent in the latest month.

Actual figures show core retail spending in May was 6.9 percent higher than in May last year.

ANZ Bank economist Mark Smith said retail spending was solid.

"What we're seeing now is that spending growth in the economy is running at around a 5 percent plus annual ... which is pretty much in line with what we're seeing in terms of the income side of the equation," he said.

"So household growth is up around 5 percent plus, so for the moment households are not really letting what is turning out to be still a big consumer sentiment fully translate into spending.

"For the moment, households are not getting too carried away with regard to spending."

Despite that, there was a fairly robust outlook for the domestic economy, and that meant the Official Cash Rate would have to increase in the coming year, Mr Smith said.