Australian retailers have been granted some good news, with inflation decelerating to 6.8 per cent in February, down from January’s 7.4 per cent.
This marks the second month of sharp ‘disinflation’, after a peak of 8.4 per cent in December, and has raised hopes that the Reserve Bank will stop its series of rate hikes when it meets again next Tuesday.
Economists were expecting inflation rates to fall, but less aggressively: to 7.2 per cent.
The most significant contributors to the deceleration were housing, which dropped from 10.4 per cent in January to 9.9 per cent, food and non-alcoholic beverages (down to 8.0 per cent from 8.2), Transport (down from 7.5 per cent to 5.6 per cent, and the lowest it has been in two years) and recreation and culture, which fell from 10.2 per cent in January to 6.4 per cent.
The main bugbear is still electricity prices, which rose 17.2 per cent over the twelve months to February. However this has stayed flat from January which may be a sign that prices will stop rising.
“The full impact of annual price reviews in July 2022 took time to flow through to many households as electricity rebates have reduced electricity bills in Western Australia, ACT, Queensland and Tasmania between July and December 2022,” the ABS explains.
This all bodes well for retailers, who were fearing that the strong sales seen over the holiday season would fall off the cliff in the new year as inflation continues to rise.
The RBA considered holding interests rates during its March meeting, but instead hiked it another 0.25 points, to 3.6 per cent.
“The further sharp fall in inflation coupled with the softness of consumption will probably prompt the Reserve Bank of Australia to pause its tightening cycle next week, though we still expect one final rate hike at its May meeting,” Capital Economics head of Asia-Pacific Marcel Thieliant said.
This doesn’t mean retailers are out of the woods yet.
While spending has remained strong throughout the ten consecutive interest rate rises, ARA’s Paul Zahra warns that the $35 billion Aussies spent in stores and online during February is bolstered by inflation.
Australian retail turnover rose 0.2 per cent in February 2023, following a 1.8 per cent jump in January, according to figures released yesterday by the ABS.
“We’re certainly seeing the start of the spending slowdown as a result of the cost-of-living pinch gripping Australians, with household goods being the first discretionary category to continue to see a reduction in spend,” Zahra said.
