Retail sales slow as Reserve Bank mulls next rate move

The value of retail turnover in Canberra climbed 1 per cent in February, the biggest increase among all the states and territories. But this is down from a 3.4 per cent jump the previous month, adding to signs that a long-awaited moderation in consumer spending may be underway and helping build the case for an interest rate pause when the Reserve Bank of Australia board meets next week.

The value of retail sales nationally grew by a modest 0.2 per cent in February, leaving them essentially flat since last November despite some volatility in the intervening months, according to the Australian Bureau of Statistics.

The result is particularly striking because population and inflation have both been growing strongly over the same period, suggesting the volume of sales is shrinking on both a real and per capita basis.

Across the country, spending in department stores climbed 1 per cent and purchases of clothes and personal items grew 0.6 per cent. But sales of household goods were flat and food purchases were up just 0.2 per cent.

One of the consistently strong areas for spending has been cafes and restaurants, and Deutsche Bank chief economist Phil O'Donaghoe said the sector was on track to recover all the ground lost during the pandemic.

Mr O'Donaghoe said restaurants lost a cumulative $12 billion of revenue during the COVID-related lockdowns, but above trend spending since early last year had restored $10 billion of that and the industry was on track to reclaim the rest by April.

Economists at Westpac and ANZ said more timely transaction data collected by their respective banks indicated spending continued to moderate this month. This is likely to be viewed favourably by the RBA as it assesses the need for tighter monetary policy.

Monthly consumer price index figures due out Wednesday will be the last significant reading on the economy before Reserve Bank board's April 4 meeting.

Signs of softening in consumption have come as governments and regulators in Australia and internationally continue to closely monitor the fallout from bank failures and rescues in the United States and Europe.

Treasurer Jim Chalmers had lengthy phone calls with United States Treasury Secretary Janet Yellen and European Central Bank President Christine Lagarde on Tuesday night and Wednesday morning ahead of a series of meetings of finance ministers and central bank governors next month, including at the G20, the International Monetary Fund and the World Bank.

It is understood that in his calls with Dr Yellen and Ms Lagarde, Dr Chalmers discussed conditions in the European and American banking systems, volatility on global financial markets and the impact of higher interest rates worldwide.

READ MORE:

Concerns about the strength of financial institutions have roiled markets since the collapse of Silicon Valley Bank (SVB) and Signature Bank in the US early this month and the emergency acquisition of Credit-Suisse by rival UBS.

Dr Chalmers said there was "no doubt" that febrile financial markets were contributing to uncertainty about the international economic outlook.

But the treasurer said international authorities were "prepared to do what's necessary to reassure markets" and expressed confidence in the strength of local banks.

"We're not immune to what's coming at us from overseas, but our own economy and financial system are well-regulated, well-capitalised and well placed to respond to these challenges," he said.

Australian Prudential Regulation Authority chair John Lonsdale expressed similar confidence in the robustness of Australian banks in a speech to a public forum in Sydney.

Mr Lonsdale said the rapid collapse of SVB "in a matter of days demonstrates what can happen when customers lose ... confidence".

He said the banking watchdog had worked to create the conditions in which trust in Australian institutions would flourish by requiring local banks to meet capital and liquidity standards exceeded international requirements and subjecting them to extreme scenarios in regular stress tests.

"In an increasingly interconnected global economy ... our banking system will always be exposed to forces beyond our control," the regulator said. "But ... Australians can be confident [that] their banking system is among the strongest and most resilient in the world."