Why are people still shopping if interest rate rises are hitting budgets?

The rise of 0.6% defies market expectations, with the ABS pointing to Aussies looking to dine-out as the key driver.

ABS Head of Retail Statistics Ben Dorber said this month’s rise was highlighted by the combined increase in food related industries, with cafes, restaurants, and takeaway food services up 1.3% and food retailing up 1.1%.

“While households continue to spend, non-food industry results were mixed and only contributed a small amount to the total rise in retail turnover,” Mr Dorber said.

Retail sales are now up 19.2% year-on-year off the back of the disruptions of 2021, marking the second-largest increase in the survey’s 39-year history.

Westpac economists anticipated retail sales to show signs of moderation, with card activity suggesting retail spending would result in a flat outcome of 0.0% for August.

ANZ economists had forecast a minor lift of 0.3% in retail sales from July, spurred on mostly by inflation.

Across the states, Western Australia and Queensland marked declines in retail turnover, falling 0.2% and 0.1% respectively in August. 

Tasmania took the crown with the largest increase in retail turnover at 2.2%, followed by:

• Australian Capital Territory at 1.9%.
• New South Wales at 1.5%.
• South Australia at 1.3%.
• Victoria at 0.1%.

Stars aligning for another 0.50% cash rate increase in October

Westpac Chief Economist Bill Evans anticipates the RBA Board will err on the side of a higher rate, with a 50-basis point increase in October before deciding to scale back the pace of tightening.

This would bring the cash rate to 2.85% - the highest since May 2013.

“Our view had been that scaling back to a slower pace of tightening could begin from the October meeting, with the cash rate reaching the ‘neutral zone’ at 2.35%,” Mr Evans said.

“Whether he (Dr Lowe) wants to start the scale-back at a rate below his assessment of neutral or begin when rates are much nearer his estimate will be influenced by his assessment of the risks on inflation, the labour market and the economy in general.”

Mr Evans notes given these extreme circumstances around the build-up of inflationary pressures central banks, including the RBA, will take the policy of ‘least regret’.

“Which will be to err on the side of containing inflation at the potential cost of growth in the near term,” Mr Evans said.

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