Data released on Tuesday by the Australian Bureau of Statistics shows that overall retail spending fell slightly in October, down 0.2% compared to September, but was 1.2% higher than a year ago.

“Retail turnover fell in October after a short-lived boost in spending in September. Turnover was down in all retail categories except food retailing,” Ben Dorber, ABS head of retail statistics, said.

While this data captures activity before the RBA’s latest interest rate rise, spending is expected to be strong in November, with cost-conscious consumers bringing forward Christmas spending and hunting for bargains across the Black Friday weekend.

“It looks like consumers hit the pause button on some discretionary spending in October, likely waiting to take advantage of discounts during Black Friday sales events in November. This is a pattern we have seen develop in recent years as Black Friday sales grow in popularity,” Mr Dorber said.

Aussies were expected to spend an estimated $6.36 billion over the Black Friday weekend alone, according to projections from the Australian Retailers Association (ARA).

“Despite a lukewarm spending projection for the pre-Christmas period, Black Friday this year is set to be record-breaking, as consumers seek out bargains amid intense financial pressure, ” said ARA chief executive Paul Zahra.

A recent Finder survey showed the average shopper planned to spend $727 throughout the sales season during events like Black Friday, Cyber Monday and Boxing Day sales.

Gen Y shoppers intended to spend the most on sales, the survey showed, with the average millennial planning to drop $858 on discounted clothes, shoes and gadgets, compared with the $580 that the average Baby Boomer is expected to spend.

Shopping splurge threatens progress to dampen demand

The rise in spending in the lead up to Christmas comes as the RBA continues to battle persistent inflation, focusing on reducing demand in the economy.

The RBA raised interest rates at its board meeting earlier this month — the first rate rise since June — after higher-than-expected inflation data released last month revealed that the bank had fallen behind in its quest to quell inflation.

Updated forecasts by the RBA showed that one or two more rate rises were required to bring inflation back to the target 2-3% range by the end of 2025.

While one of those rate rises has already been delivered, whether the RBA will need to lift rates again remains up for debate, as does the timing of the next potential hike.

In the minutes from this month’s board meeting, the bank made clear its renewed focus was on reducing demand in the economy to ease persistent inflation.

While inflation has fallen from the peak recorded late last year, the bank stated that much of that disinflation was due to easing supply shocks rather than a reduction in domestic demand.

The RBA said domestic demand was proving more resilient than expected, despite interest rates rising since May last year to a 12-year high.

RBA governor Michele Bullock said in a speech last week that the remaining inflation challenge was “increasingly homegrown and demand driven” and that prices were rising strongly for services including hairdressers, dentists and dining out.

The bank now predicts it will take longer to return inflation to target than it has taken to bring inflation down to current levels from its peak in late 2022.

“We expect it to take another two years for inflation to fall that much again and move below 3%,” Ms Bullock said.

Banks and markets divided over next rate move

While strong retail spending could give the Reserve Bank pause for thought at its next board meeting, the big banks expect the RBA’s data-dependent approach will mean the next rate hike won’t happen until February, if at all.

NAB expects one further increase in the cash rate to a peak of 4.6% in early 2024.

ANZ senior economist Blair Chapman said the RBA won’t consider hiking until February, when the board will be able to review the latest inflation data and updated forecasts.

Meanwhile, CBA Head of Australian economics Gareth Aird believes the cash rate has peaked at 4.35%

“There is simply not enough other economic information ahead of the December meeting for the Board to move rates higher,” he said.

Westpac chief economist Luci Ellis said the RBA’s next rate move will likely be a cut in the second half of 2024.

“To justify another hike, further upside surprises for inflation and demand are necessary,” she said.

Market expectations of a rate rise in December are low, with the ASX RBA Rate Indicator ascribing a 10% chance of a hike next month.

Sourced from realestate.com