A bigger-than-expected rise in retail sales during October will stop the Reserve Bank of Australia (RBA) from cutting interest rates again, an economist says.
Australian retail spending rose half a per cent in October, official figures show, which was more than market expectations of a 0.4 per cent increase.
Commonwealth Bank senior economist Michael Workman says the fourth consecutive monthly rise in retail sales means the RBA won’t be cutting interest rates again in this cycle.
“It looks like, clearly, the pickup in consumer confidence we’ve been seeing for the past four months is translating to a slightly firmer outcome here on the monthly retail trade numbers,” he said.
“From the market’s point of view, it’s one of those issues that you would say would go against the requirement from any further RBA rate cuts.”
The RBA on Tuesday is holding its last monthly board meeting for 2013. Its rate decision comes after the Australian Bureau of Statistics revealed total retail spending rose to $22.285 billion in October, up from $22.180 billion in September.
Mr Workman said rising home prices were behind much of the increase in retail spending during October.
“If you get better indications your wealth is rising, you’re more likely to spend a bit more,” he said.
RBC Capital Markets senior economist Su-Ling Ong said recent RBA interest rate cuts were starting to have an affect on consumer spending.
“It was a decent set of numbers all round. The retail sales numbers surprised to the upside for the third month in a row,” she said.
“I suspect the RBA would view it through the prism of (monetary) policy gaining a little bit more traction with the lower consumer interest rates flowing through.
“It think it was also assisted by higher rates of consumer confidence and rising asset markets.”
Spending in department stores fell for the first time in two months, down 0.3 per cent in the month.
“It’s come of the back of a pretty strong month and it is a bit volatile, but more broadly there has clearly been a pickup in retail activity,” Ms Ong said.