Australian retail sales posted a slight increase in January, following a strong performance in the final quarter of last year. Consumer spending continued to rise thanks to slowing inflation and large income tax cuts.
Other data showed net exports contributed unexpectedly to economic growth in the fourth quarter, suggesting positive surprises that could weigh on economic momentum going forward. The boost in exports was significant, with the export contribution offsetting government spending. The improvement has boosted economic expectations heading into the end of 2024.
According to data released by the Australian Bureau of Statistics on Tuesday, retail sales rose 0.3% in January from a slight decline of 0.1% in December. The result was in line with economists’ expectations, reflecting a relatively stable market during the first month of the new year.
On an annual basis, retail sales rose 3.8% year-on-year to A$37.1 billion (US$23.1 billion). According to the Australian Bureau of Statistics, the increase was driven mainly by food spending, indicating increased consumption in essential sectors, while sales of discretionary goods, such as clothing and electronics, were more volatile.
“Major events such as the Australian Open tennis tournament and cricket events, which saw record attendance, boosted spending on catering services, which helped drive this increase in sales,” said Robert Ewing, head of business statistics at the Australian Bureau of Statistics.
Some of the improvement in retail sales was due to the first interest rate cut in more than four years. This cut helped reduce mortgage repayments, which improved consumer sentiment.
The Reserve Bank of Australia’s cautious approach to monetary policy
In addition, Australians benefited from slowing inflation, which made essential goods more affordable, prompting them to increase spending in the food and non-food sectors.
However, the RBA had expected some of the recent recovery in consumption to be driven in part by temporary benefits linked to rebates introduced at the end of last year. Other data showed that sales of household goods fell by 4.4% in January, after four straight months of growth.
As part of the RBA’s cautious approach to monetary policy, the bank has continued to be cautious about easing monetary policy further. Last month, the bank cut interest rates by a quarter point to 4.1%. Resistance to any further cuts is expected in the near future.
These monetary moves reflect other economic developments in Australia, such as the surprising strength in the labour market. This has a significant impact on incomes and thus spending. At the same time, falling unemployment may also play a role in maintaining market stability, which poses a challenge to further monetary policy easing.
Furthermore, financial markets are suggesting that another rate cut is unlikely at the next meeting scheduled for April. However, many analysts are looking for a greater chance of that happening in May, with the odds at around 78%. This reflects uncertainty about the direction the RBA will take at its upcoming meetings.
Finally, although sales in Australia showed modest growth in January, the Australian economy continues to face multiple challenges. Expectations suggest that it will be necessary to maintain a balance between supporting consumption and taking cautious decisions on monetary policy. These dynamics will influence economic growth in the coming months, as the economy continues to adjust to local and global variables.
Analysis by industry in Australian retail sales – January 2025
1: Food Retail
Food retail sales increased by 0.7% ($102.0 million) in January, seasonally adjusted. The breakdown by industry sub-category is as follows:
- Supermarkets and grocery stores: up 1.0% ($120.7 million).
- Other specialty food retail: up 0.8% ($9.1 million).
- Alcoholic beverages: down 1.8% ($-27.7 million).
2: Household goods retail
Despite strong performance from some sectors, household goods sales fell by 4.4% ($-269.7 million) in January, seasonally adjusted. Sub-categories that were notable for this decline included:
- Electrical and electronics: down 8.2% ($-190.7 million).
- Furniture and other household goods: down 4.9% ($-82.8 million).
- Hardware, building supplies and garden: increased by 0.2% ($3.9 million).
3: Apparel, footwear and personal accessories retail
In this sector, sales of apparel, footwear and personal accessories increased by 2.0% ($60.1 million) in January, seasonally adjusted:
- Apparel: increased by 2.4% ($48.5 million).
- Footwear and personal accessories: increased by 1.2% ($11.6 million).
4: Department stores
Department store sales increased by 0.6% ($12.4 million) in January, seasonally adjusted.
5: Other retail
Retail sales in this category increased by 2.4% ($136.3 million) in January, seasonally adjusted. This includes:
- Other retail sectors: increased by 2.1% ($55.5 million).
- Pharmaceuticals, cosmetics and personal care: up 2.3% ($54.0 million).
- Other leisure goods: up 5.3% ($32.5 million).
- Newspapers and books: down 3.3% ($-5.6 million).
- Cafes, restaurants and takeaway services
Cafes, restaurants and takeaway services sales increased by 1.1% ($61.6 million) in January after a seasonally adjusted increase. This reflects:
Cafes, restaurants and catering services: up 1.9% ($64.7 million).
Takeaway services: down 0.1% ($-3.0 million).
- Online retail
Online retail sales in January 2025 increased slightly by 0.2% ($8.7 million), to a total of $4,427.6 million after a seasonally adjusted increase. They also recorded a year-on-year increase of 12.0% ($473.2 million).
Online food sales: down 0.1% ($2.0 million).
Online non-food sales: up 0.3% ($10.7 million).
