Summary: Retail sales jump in March; food stockpiling and price rises behind the increase.
Growth figures for domestic retail sales have been declining since 2014 and they reached a low-point in September 2017 when they registered an annual growth rate of just 1.5%. They then began increasing for about a year, only to stabilise at around 3.0% to 3.5% through late 2018 before trending lower through 2019 and early 2020. March’s figures bucked the trend.
According to the latest ABS figures, total retail sales jumped by 8.5% in March on a seasonally-adjusted basis. The gain was larger than the 8.2% increase which had been expected after “flash” figures were released on 22 April and it was a leap from February’s +0.6%. On an annual basis, retail sales increased by 10.1%, as compared to February’s comparable figure of 1.8%.
Westpac senior economist Matthew Hassan said the spike was “due to prices rather than volumes.”
The report came out on the same day as the March home loan data and Commonwealth bond yields moved higher, largely in line with US Treasury movements. By the end of the day, the 3-year ACGB yield had ticked up 1bp to 0.25% while 10-year and 20-year yields had each gained 5bps to 0.91% and 1.53% respectively.
In the cash futures market, expectations of a rate cut softened a little. By the end of the day, June contracts implied a rate cut down to zero as a 51% chance, down from the previous day’s 54%. July contracts implied a 65% chance of such a move in that month, down from 67%. Contract prices of months in the remainder of 2020 and through to mid-2021 implied similar probabilities, ranging between 43% and 60%.
Other economists were quick to point out the price-driven nature of the increase. “Grocery stockpiling somewhat offset the negative spending effects of COVID-19 lockdown constraints, but [it] wasn’t enough to create a spike in total retail volumes,” said ANZ economist Adelaide Timbrell. Westpac’s Hassan said retail volumes over the March quarter “rose just 0.7%, well below expectations of a 1.8% gain.”