Victorian lockdown keeps lid on spending

Retail spending rose by 0.1 in May, the Australian Bureau of Statistics has reported.
Retail spending rose by 0.1 in May, the Australian Bureau of Statistics has reported.

Retail spending grew slightly in May as sales in locked-down Victoria dropped, weighing heavily on the national result.

The Australian Bureau of Statistics' preliminary retail trade figures for May showed spending grew by 0.1 per cent to $31.1 billion, following a 1.1 per cent increase in April.

However, spending declined 1.5 per cent in Victoria as the state entered its fourth lockdown, restricting trading for high street stores.

The Melbourne lockdown remained in place until June 9, suggesting this may also weigh on the June sales report.

"Every lockdown comes at a significant cost, and there is now no safety net for retailers," Australian Retailers Association CEO Paul Zahra said.

"As we've seen over the past month in Victoria, and now in Sydney - the COVID threat is far from over and new cases can quickly emerge despite our best efforts to contain the virus."

Still, sales grew by 1.5 per cent in both Queensland and Western Australia, and the overall modest national rise in May still left spending 7.4 per cent higher than a year earlier.

"Overall, the outlook for consumer spending remains positive due to elevated confidence, the strong labour market recovery, rising asset prices, border closures and excess household savings," Commonwealth Securities senior economist Ryan Felsman said.

Even talk suggesting the Reserve Bank of Australia may bring forward the timing of a hike in the cash rate would still leave borrowing costs at the extremely low levels for the foreseeable future, another positive for retailers.

Westpac chief economist Bill Evans says last week's employment report was a "game changer" with the unemployment rate unexpectedly dropping to 5.1 per cent and back to its pre-pandemic level.

This is way ahead of what the RBA and Treasury was expecting.

The RBA has repeatedly said a rise in the cash rate from a its record low 0.1 per cent will not happen until the inflation rate is within the two to three per cent target, which will need wages to be growing at three per cent and a jobless rate closer to four per cent.

It has not expected to see these events until 2024 at the earliest.

But Mr Evans expects those conditions for a rate rise will be met by early 2023 and predicts a 0.15 per cent rate rise in the first three months of that year.

That would be followed by a 0.25 per cent increase in the June quarter 2023 and a further 0.25 per cent in the December quarter.

"That would restore the cash rate to 75 basis points (0.75 per cent) by end 2023, in effect reversing the 'emergency' rate cuts in 2020 when the RBA responded to the COVID crisis," Mr Evans said.

AMP Capital chief economist Shane Oliver says there is a risk a rate rise could come in late 2022, while BetaShares chief economist David Bassanese believes a hike could potentially be brought forward to mid-2022.

Australian Associated Press