Retail sales figures have been lacklustre for the past couple of years but in 2018 the annual growth rate showed some signs of stabilising, albeit at a low rate. Annual growth rates started trending up in early 2018 and growth rates of individual months exceeded expectations on several occasions, only to miss market expectations in December and January 2019. However, the latest batch of figures has surprised observers with their strength.
According to the latest ABS figures, total retail sales increased by 0.8% over February on a seasonally-adjusted basis, well above the expected +0.3% increase and a distinct leap from January’s +0.1%. On an annual basis, retail sales increased by 3.2%, up from January’s comparable figure of 2.7%.
Local financial markets reacted by sending bond yields higher. By the end of the day, the yield on 3-year, 10-year and 20-year Treasury bonds had all increased by 3bps to 1.36%, 1.85% and 2.27% respectively. In terms of local monetary policy, expectations of future rate cuts were pared back slightly but not really be enough to materially alter the outlook through 2019 and 2020. August contracts implied a 98% chance of a 25bps rate cut while November contracts implied one cut plus a 44% chance of an additional reduction in the cash rate down to 1.0%.